With debate resurfacing in Council, it is useful to note that the issue of the payment of company directors has already been addressed in specific and relatively detailed recommendations. In December 2004, the European Commission adopted ⁽¹⁾ around ten suggestions encouraging the implementation of an appropriate scheme for the remuneration of directors. The recommendations were developed in response to a broad consultation in 2002-2003 launched by former Internal Market Commissioner Frits Bolkestein. They were due take effect on 30 June 2006 after notification of the member states.

LISTED COMPANIES

Only listed companies whose registered office is based in the EU are concerned. There is specific mention that the recommendation applies to the remuneration of directors in circumstances “where they are not members of the administrative, managerial and supervisory bodies of a listed company”.

The states are asked to give due account to the specific features of undertakings for collective investments (UCITS) provided they do not seek to take legal or managerial control over any of the issuers of the underlying investments. Member states should also ensure that the recommendations are followed by listed companies that are not incorporated in the EU but that have “their primary listing on a regulated European market”.

PERFORMANCE CRITERIA

Provided this does not “entail the disclosure of information of a commercially sensitive nature,” the companies concerned must publish a remuneration statement, if possible in an independent report. The information should be available on company websites.

The statement should include: current data on directors’ remuneration and “if appropriate” data for “subsequent” years. Any “significant changes” decided by the company should be highlighted.

In detail, the remuneration statement should “at least” contain: an explanation of the relative importance of the variable and non-variable components of directors’ remuneration; sufficient information on the performance criteria on which any entitlement to share options, etc, is based; the “rationale” for any annual bonus scheme and any other non-cash benefits; and a description of the main characteristics of supplementary pension or early retirement schemes for directors.

Companies are also asked to be transparent on the duration of contracts of executive directors, including information on clauses on termination payments and other payments linked to early termination and the way remuneration policy for directors is prepared and developed (criteria, names of external consultants, etc). Remuneration policy must be an “explicit” item on the agenda of the annual general meeting.

INDIVIDUAL REMUNERATION

The total remuneration (and other benefits granted to individual directors), including attendance fees, must be shown in the company’s annual report or in a specific report. Remuneration is understood to include: remuneration and advantages received from any undertaking belonging to the same group; profit sharing; bonus payments and the reasons why such bonus payments and/or profit sharing were granted; additional remuneration paid for “special services”; compensation paid to or receivable by each former executive director; and the total value of non-cash benefits.

As regards shares and/or rights to acquire share options granted to directors, the remuneration statement must detail “the number of share options” offered and their value at the end of the financial year. Information must also be included on remuneration in the form of supplementary pension schemes granted to directors.

SHARE-BASED REMUNERATION

Schemes under which directors are remunerated in shares, share options or any other right to acquire shares, which are “not offered under similar terms to all other employees,” should be “subject to the prior approval of shareholders by way of a resolution at the annual general meeting prior to their adoption”.

Any substantial change in these conditions should also be subject to the prior approval of shareholders. Where discounted option arrangements (allowing the subscription of shares at discounted prices) are permissible under national law, they must also be approved by shareholders.

INFORMING SHAREHOLDERS

An information notice must be made available to shareholders on any draft resolution concerning certain schemes (see above). The notice must contain “at least” the full text of the share-based remuneration schemes “or” a description of their principal terms and the name of the participants in the schemes.

The Commission also recommends that the company should make available information on “how it intends to provide for the shares needed to meet its obligations under incentive schemes” (particularly whether the company intends to acquire the shares on the market, hold them in treasury or issue new shares). This information should also “provide an overview of the costs of the scheme” to the company.

The Commission’s recommendation of 14 December 2004 is available at www.europolitics.info > Search > 226180

Only listed companies whose registered office is based in the EU are concerned
⁽¹⁾ The Commission based its recommendations on Article 211 of the EC Treaty. That article establishes that the Commission may take such an initiative on matters dealt with in the treaty if it “considers it necessary”.