In view of the legal, political and ideological constraints existing in Europe today, it remains a major uphill task to take action on what Jean-Claude Juncker has described as “scandalous” pay packages awarded to company directors.

SOCIAL LEGAL BASIS

From the social standpoint, EU action on workers’ remuneration – if company directors are treated as workers – runs straight away into a legal obstacle. The drafters of the EU treaty did not include remuneration (Article 137 EC Treaty) in the social harmonisation system (directives laying down “minimum requirements,” exchanges of information and best practice, cooperation between member states). However:

1. The European Commission has the power to encourage cooperation between the member states in all areas of social policy, including working conditions and thus pay (Article 140 EC Treaty).

2. There may be no discrimination between workers on grounds of nationality with regard to remuneration (Article 39 of the Treaty). Likewise, equal treatment – and pay – for men and women must be guaranteed “for equal work or work of equal value” (Article 141). The difficulty here is not the legal basis but the implementing condition. How can there be a comparison of a situation of “equal work” for a company director where every case is specific, from one company to the next and even within a single company?

INTERNAL MARKET LEGAL BASIS

Since directors’ pay is often composed of non-salary elements (profit sharing, stock options, insurance, etc), EU action is possible on the basis of internal market principles. But the need for harmonisation would have to be justified and doing so for directors alone appears as difficult as for anti-discrimination (obstacles on the internal market concern workers who are not directors).

That is the main flaw of the 2004 recommendation. Aimed only at directors of listed companies, it excludes other companies and very high level executives (not directors) who nevertheless also receive this type of remuneration.

An instrument targeting taxation will also run up against an institutional obstacle, the rule of unanimity.

In fact, the debate on the legal basis masks another, more ideological debate. It appears hard to conceive of establishing at EU or national level a ceiling for the remuneration of certain workers, even if from the moral and political point of view the extravagance of certain pay levels shocks the public opinion. This is more an ideological than a legal barrier.

ALTERNATIVE MEANS OF ACTION

The European Union nevertheless has several alternatives for taking action on this issue.

First, enhancing transparency in companies, notably the powers of workers’ representative bodies. The debate that will begin on revision of the 1994 directive on the European Works Councils could be an opportunity (before generalising it to all companies).

Second, profit sharing. There has been excellent work on this subject for the last 20 years (PEPPER I report in 1991, PEPPER II in 1996, Commission document in 2001, recommendation in 1992, communication in 2002, expert report in 2003, etc). In 2002, the European Commission proposed to “establish a general framework for the promotion of profit sharing in Europe;” the 2003 expert report recommended various practical actions. Meantime, though, there has been no further action on these reflections…

The 2002 communication and the 2003 report are available at www.europolitics.info > Search > 226280

The European Union nevertheless has several alternatives for taking action on this issue