Excessive High Pay Damages Companies is bad for Our Economy and has Negative Impacts on Society as a Whole. At its Worst, Excessive High Pay Bears Little Relation to Company Success and is Rewarding Failure.

Introduction1

Director Remuneration and the UK Companies1

Shareholder vs. Directors3

Director Remuneration and Success of the Company4

Critical Evaluation of Director Remuneration Laws in the UK5

The Companies Act 20066

The High Pay Commission7

Relevant Case Laws8

Southern Foundries Ltd. v Shirlaw8

Hutton v West Cork Railway Company9

Re Halt Garage (1964) Ltd9

Guinness Plc v Saunders (1990)10

Effectiveness of the UK Regulatory Regime11

Director Remuneration and Shareholders' Interest11

Conclusion12

Bibliography14

Excessive High Pay Damages Companies is bad for Our Economy and has Negative Impacts on Society as a Whole. At its Worst, Excessive High Pay Bears Little Relation to Company Success and is Rewarding Failure.

Introduction

The paper attempts to analyze director remuneration laws in the UK. The paper conceives relevant information in a disagreement to the subject matter. Purpose of the paper is to ensure that levels of director remuneration are in the best interest of the shareholders. Firstly, the paper sheds light on the director remuneration from the view of the UK companies. The paper differentiates between shareholders and directors and identifies limitations and delimitations of director remuneration.

Secondly, the paper conducts critical evaluation of the UK laws related to director remuneration in the light of evidence collected from relevant case laws. In addition to this, the paper examines effectiveness of the UK regulatory regime and explores the relationship between the level of director remuneration and shareholder's interest. Finally, the paper provides conclusive remarks on the UK laws related to director remuneration and its benefit to the shareholders.

Director Remuneration and the UK Companies

The term 'director remuneration' refers to a complete compensation package received by a particular company's director. A Director's remuneration is composed of four basic components such as basic salary, incentives related to performance, pension and perks (figure 1). It is also defined as the matter of agreement between the director and the company. Nonetheless, director remuneration is a complete package of monetary, non-monetary and other economic benefits that an executive or director may receive during his/her employment. A service agreement sets legal and regulatory framework for a director's performance, role and authority and compensation package. In an organization, the Corporate Governance Code is the authority to define service agreement and remuneration for directors and executives.

Figure 1: Components of Director Remuneration (Kaplan, 2013, p. n.d.)

Over the past few decades, level of director remuneration has been one of the major shareholder concerns; especially in the event of poor financial performance of the business. However, recent regulatory reforms and extensive corporate governance reports have paved the way for addressing the shareholder's concern. These publications have helped to create a balance between the shareholder's interest and the level of director remuneration. For instance, The Greenbury Report of 1995 is regarded as a milestone achievement in creating a balance between performance and compensation of directors. Committee recommendations were helpful in reinstating shareholders' confidence and defining a clear regulatory framework on director ...