Commissioner Joaquín Almunia did not hide his disappointment during the Ecofin Council regarding the low degree of application by member states of the European Commission’s 2004 recommendations. In July 2007, a report had already expressed the Commission’s regret that the issue of the divulgation of remuneration has not made clear progress, save a “small number of member states”.

On 23 April, the Economic Policy Committee (EPC) once again drove home the point. In a note for the attention of the Eurogroup, the EPC believes that the level of implementation of the Commission’s recommendations “differs substantially” from one country to another. Concerning the performance criterion, it is only “vaguely defined” and when it is clear, this criterion is not transparent enough.

Nor is the question of golden handshakes evaded: for the EPC, this subject should be studied with “special attention”. Leaving pay should be linked “in an appropriate way” to the contribution of the director to his company’s success, knowing that at this stage two member states (Cyprus and Portugal) have still not legislated on the matter.

The EPC also stresses that in mergers and acquisitions matters, there is a “low degree of divulgation” of information which could cover up “potential conflicts of interest”. There is also a lacuna in that the shareholders’ control of the remuneration policy proposed by the Commission in its recommendation remains low.

COORDINATED FISCAL APPROACH

At the end of an exchange of viewpoints with the 15 eurozone member states (EU15), the EPC believes that member states could plan a clarification of the performance criterion (set out by the Commission’s recommendation). The EU15 would also be inclined to improve control of payment by shareholders.

Regarding taxation, the EPC states – very cautiously – that a coordinated approach could also be planned concerning the tax treatment granted to administrators’ revenue. Because for now the situation remains very variable: while in general more or less all these remunerations are taxed, in Spain and Austria specific tax arrangements exist for directors.

For the Economic Policy Committee, two aspects will need to be taken into consideration: knowing, firstly, that the tax treatment applicable to stock options is generally part of the package to motivate senior directors and, secondly, any modification will have to be sure not to jeopardise business competitivity…

DISPROPORTIONATE RISK TAKING

As Commissioner Almunia reiterated, the question of remuneration of directors of listed companies must also be discussed in the light of the current financial turmoil. In this regard, the EPC report particularly cites recommendation number 19 of the Financial Stability Forum (FSF), of 7 April, adopted in Washington. The EPC therefore suggests that the financial industry aligns its remuneration model for senior company directors for the long term rather than the short term. To succeed in this, the FSF suggests that regulators and supervisors open work to this effect in order to reduce “inappropriate risk-taking”.

The Commission’s report on the implementation of the 2004 recommendations (July 2007) is available at www.europolitics.info > Search > 226184

The Economic Policy Committee’s briefing note (April 2008) is available at www.europolitics.info > Search > 226184

In Spain and Austria, specific tax arrangements exist for directors