The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here is a note from Tamsin Sridhara of Towers Watson:

In recent years, the primary focus of European Union (EU) policy makers in terms of regulatory interventions on remuneration has been within the financial services sector. Currently, the European Parliament and European Council are negotiating the nature and scope of any maximum ratios relating to variable/fixed pay in financial services.

However, last week the focus shifted (temporarily) back to listed companies in general with the European Commission’s publication of its action plan for various corporate law and governance initiatives for EU member states. These initiatives are focused on enhanced transparency for shareholders (and other stakeholders), engaging shareholders and supporting business growth.

In line with these themes, the Commission’s proposals with respect to director remuneration are focused on:

– Ensuring consistent levels of disclosure across all member states on director remuneration policy and individual executives’ remuneration levels
– Giving shareholders in all member states a vote on director remuneration policy and/or the report (it is unclear whether this would be binding or not).

The Commission is due to publish detailed draft proposals in 2013. A current suggestion is that the vehicle for any new disclosure and shareholder voting requirements would be an updated version of the Shareholder Rights Directive. Any changes would need to go through the standard EU process — negotiated by the European Parliament and the European Council. This is when the diverse political agendas across Europe come into play and alternative proposals can be introduced. This process means that proposals are unlikely to be finalized until 2014.

Implications
For companies in European countries that already require detailed disclosure and shareholder votes on pay, there may be little impact. For companies in other EU countries, there will likely be ample time to prepare for the changes. Towers Watson will keep you informed of significant developments.