Employment issues

Directors' service contracts and remuneration

Directors are not, by virtue only of their office as director, automatically entitled under company law to remuneration for services as a director or to reimbursement for expenses incurred in rendering such services. Power to pay directors for fulfilling the function of director must be conferred by the articles. A director may also be contractually entitled to remuneration for services performed by virtue of an agreement with the company, such as a service contract in the case of an executive director.

In regard to directors' remuneration and service contracts, UK listed companies must also comply or explain non-compliance in relation to the UK Corporate Governance Code. They will usually also need to have regard to recommendations made under institutional investor guidelines.

In addition, the Companies Act 2006 (CA 2006) and related regulations require the company to produce a directors' remuneration report each financial year disclosing specified details relating to directors' remuneration.

Shareholders have a right to a binding vote to approve the directors' remuneration policy and, once so approved, all directors' remuneration must fall within the policy's scope. The remuneration policy...