In its July 1995 report on directors' remuneration, the Greenbury study group asked the London Stock Exchange to introduce listing rules to implement a number of the group's recommendations.
This is being done by the exchange in three parts. The first batch of rules was published in October 1995 and these were supplemented in June 1996. The remaining recommendations are expected to be implemented by listing rule changes later this year.
As a result of the changes last October, companies' annual reports and accounts must now include: a report to shareholders from the company's remuneration committee giving information on each director's remuneration; a statement as to whether or not the company has complied throughout the accounting period with the best practice provisions regarding remuneration committees; and a statement in the remuneration committee's report that it has given full consideration to the best practice provisions for remuneration policy, service contracts and compensation.
The remuneration committee is at the heart of the changes made last October. Although Greenbury recommended every listed company should have one, the exchange does not require this. Instead, it recognises the committee as best practice and requires every company to state whether or not it complies with this and the other best practice provisions annexed to the listing rules.
Further listing rule changes come into effect on 30 September 1996, implementing all but one of the outstanding Greenbury recommendations. Long-term incentive schemes in which directors can participate must be approved by shareholders before adoption, except where participation is extended on similar terms to all or most employees.
The exchange is also consulting on the implementation of the Institute and Faculty of Actuaries' recommendations on the methods of valuation to be used in the disclosure of directors' pension entitlements in financial statements. This aims to develop the words to implement the recommendations rather than re-opening the discussion about method. Further changes to the listing rules are expected by the end of 1996 to reflect this.
The Hampel committee has now started work on its corporate governance review, and its report is expected in late 1997. It is being urged to consider exemptions for smaller listed companies, the further refinement of the rules of disclosure of directors' pay and the roles of non-executive directors and institutional investors.