The EU executive will try to redress imbalances in directors' pay at listed companies. A second, more specific recommendation will pursue a revision of remuneration policies in the financial sector.
No golden parachutes for failing managers
The first measure will complement a recommendation issued in 2004 to increase disclosure of managers' pay (see background). Brussels is now asking member states to introduce legislation banning so-called 'golden parachutes' for directors quitting companies in distress.
In addition, the Commission is promoting a managerial culture linked to the long-term sustainability of companies, rather than quick but risky short-term results, as have often been pursued in recent years.
To reach this goal, Brussels will propose to introduce vesting periods of at least three years for managers, in order to increase their commitment to the company, EU officials told EurActiv. Directors should also be required to hold a substantial number of shares in their own companies until the end of their employment.
Critics of the measure accuse the Commission of lacking ambition by opting to issue a recommendation instead of pursuing direct legislation. Recommendations are not legally binding, and many have already been ignored by member states, especially in the field of directors' remuneration.
Tougher line on bankers
Brussels is pushing for tougher measures to limit bankers' financial reward in case of failure. Indeed, the entire financial sector is likely to be subjected to more stringent and binding rules on remuneration to avoid the perverse developments which beefed up the current financial and economic crisis.
Today's recommendation is expected to be followed by a legislative proposal in June, according to Oliver Drewes, spokesperson for Internal Market Commissioner Charlie McCreevy.
The main objective of the new legislation would be to subject remuneration policy to prudential oversight. In other words, financial institutions will be asked to put more money aside if they want to reward their directors in a way that could encourage excessive risk-taking.
"The Commission intends to add remuneration of the financial sector to the Capital Requirements Directive," said Drewes. The legislation was reviewed by the EU executive in October 2008 and is currently awaiting a vote in the Parliament, pending agreement with member states (EurActiv 02/10/08). The lack of consensus has already forced the EU assembly to delay the vote until its last session before the European elections in June.
It is unclear whether the Commission's intention to intervene again on the directive in June will favour those interested in postponing the vote to the next Parliament, which would mean that the text will not go back to MEPs before September 2009, after the European elections.