Remuneration of directors of listed companies31/07/09 / cata_european-union-news

The European Commission has also completed in a form of a Recommendation the existing system of remuneration of directors of listed companies (Official Journal L 120/2009). The Commission asserts basic principles that are the same as the remuneration in the financial sectors: focus on long-term sustainability instead of short-term results, elimination of excessive payment incommensurate with performance, simplifying the pay structure and its transparency. Other requirements relate to the principles of payment of the so-called "golden parachutes" and bonuses in the form of shares or share options.

The Commission calls for limitation of severance payments, namely by a stated fixed amount of money or by a sum of money for a fixed number of years of duties. Generally the amount of severance payments should not be higher than the fixed component of pay for two years. Severance payments should not be paid as a "reward for failure" or if the director terminates employment of his or her own accord.

Remuneration in shares or options should be linked more to the long-term value of a company. Consequently there should be a certain period during which the director is not entitled to exercise awarded share options or any other right to acquire shares. The Commission states this should be at least a three-year period. However, a director would be required to keep a certain number of shares on a compulsory basis until the end of his or her mandate; the Recommendation considers as appropriate, for example, the number of shares corresponding to twice the value of total annual remuneration, including fixed and variable components. Options on shares should not be used to pay non-executive members or supervisory directors. Companies should publish particular aspects of remuneration policy for members of boards in the form of a statement on remuneration. The content of this information should be extended and available on the website of listed companies.