The paper examines two different approaches adopted in the UK to regulate directors’ remuneration. The aim is to explore the approaches to understand which one better regulates directors’ pay and why. It provides an account of the approaches’ evolution, effectiveness and challenges toward the regulation of directors’ remuneration.
The paper reviews various corporate governance codes, their recommendations on directors’ remuneration, their effectiveness and the challenges of regulating directors’ remuneration. The paper also reviews provisions of the Companies Act 2006.
The paper finds that corporate governance adopts a better approach to regulating directors’ pay than the Companies Act 2006, because it targets the pay-setting process. However, the existence of gray areas and lack of enforcement procedure poses a challenge to its effectiveness. The Companies Act 2006 is unable to regulate directors’ pay adequately, because it adopts a corrective approach and it considers directors’ remuneration as a management responsibility.
The paper offers an up-to-date assessment of the two approaches to regulating directors’ pay in the UK. It highlights the challenges faced by both approaches and considers which approach could regulate directors pay better and its challenges.
