Trade and Industry Press Notice 72

Session 2002-03

5 June 2003



As part of its continuing investigation into corporate governance, the Trade and Industry Committee is today launching an inquiry into the remuneration of company directors.  The inquiry will focus on the issues raised by the Government’s consultation document, “Rewards for failure” Directors Remuneration  - Contracts, Performance and Severance, and in particular the nine questions on which the Government is specifically seeking views:

• Whether, and if so how, compensation and severance payments could be limited by restricting notice periods to less than one year, and/or by capping the level of liquidated damages;

• Whether, and if so how, to encourage the use of phased payments to limit the total severance or compensation payment;

• How most effectively to promulgate improvements in best practice (eg by Institutional shareholder guidance, amendments to the Combined Code);

• Any other best practice options that would limit severance payments where a company has performed poorly;

• Whether it is possible by legislation to require directors’ contracts to contain provision for the company board to take underperformance into account when determining severance payments; and how to avoid the potential for litigation arising from such a provision;

• Whether directors’ contracts should be limited by statute to one year’s duration, or three years on first appointment;

• Whether there should be a statutory ban on the use of rolling contracts in effect to lengthen the notice or contract periods;

• Whether to prohibit covenants which provide for more compensation than would be available under a one year or three year term contract; and

• Any comments on the costs and benefits of the proposals as set out in the Government’s Regulatory Impact Assessment. 

Written evidence

The Committee invites written evidence which should be submitted by Tuesday 24 June .  If possible, evidence should take the form of a memorandum with numbered paragraphs and should be submitted, as a MS Word document, by e-mail to [email protected] with a single hard copy sent to the Clerk at the address above.

Oral evidence

 The Committee intends to take oral evidence on 1 July.  Details will be announced in a separate Press Notice as soon as possible.

For further information please contact the Committee Office on 020 7215 5777/5778/5779.