With the executive pay ratio reporting deadline next year creeping ever-closer, there’s more attention than ever on the remuneration of directors, executives and c-suite individuals.
Getting your executive pay ratios right is vital for transparency and consolidating the trust of your employees.
But before we look at strategies and reporting requirements, let’s take a step back and define what you need to be looking at.
What does remuneration mean?
It means the pay or compensation for services you perform. It can take the form of a salary or wage, and can include allowances, benefits, bonuses, and incentives.
Typically, a report on earnings includes details on base salary, as well as any other bonuses or benefits you receive during your time with the company.
What is a directors’ remuneration report?
If your company is quoted and has 250 or more employees in the relevant financial year, you must publish a director’s pay ratio. Failure to do so could result in significant fines.
It needs to include a single figure for total earnings of the company CEO at any time during the financial year.
You should split the total figure into the following amounts:
- Salary and fees: Total salary and fees in the past financial year.
- Taxable benefits: Gross value of benefits before tax, including allowances and other benefits received.
- Annual bonus: Assets received for achievement or performance that financial year.
- Long-term incentive awards: Awards received unrelated to personal performance.
- Pension-related benefits: Includes payments made in cash or in lieu of retirement benefits.
- Total: Sum of all other figures.
Some companies prefer to separate non-executive director remuneration from executive remuneration.
If you plan to make this separation you should set out the total figures in separate tables in the separate amounts detailed above.
You can refer to Directors' Rewards for further advice on this.
Director remuneration vs director fee
You actually need to include a director’s fee in the earnings report. A fee is a regular payment made to a director by the company for their services.
It’s a legal requirement to have a directors’ remuneration policy. This policy is subject to a binding vote every three years at least.
The policy must also set out a requirement to produce an annual report on remuneration, and guidance on how you should implement the current policy in the following financial year.
Having a strict remuneration strategy ensures that the reports remain consistent and accurate.
Calculation of directors’ remuneration
The way to calculate and accurately report on a director’s remuneration disclosure is simple.
Calculate the annual sum of each category mentioned above (salary, benefits, bonus, etc.) for the full 12 months of the relevant financial year.
The basic salary doesn’t necessarily need to include the figure set at the director’s annual review.
Bonuses need to include any deferred portion of the annual bonus, and the value of all pension-related benefits need to relay all payments within a year of participating in the pension scheme.
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