Parliament backs shareholders’ say on directors’ pay

HSBC suffered a shareholders revolt in 2015 as they questioned its Swiss banking arm performance and the composition of its board. [Red Fish Images/ Shutterstock]

The European Parliament backed an agreement on Tuesday (14 March) reached with member states to allow shareholders a say on directors’ remuneration schemes.

The new EU rules aim at improving firms’ focus on their long-term performance by increasing their shareholders’ commitment to it.

By 646 votes to 39, with 13 abstentions, lawmakers approved the agreement reached with the Council during the three-way talks last December.

Once the legislation enters into force, shareholders will be able to tie big bosses’ pay more closely to the company’s performance and long-term interests.

Shareholders will also find it easier to exercise their rights to participate and vote in general meetings. Transactions potentially harmful for the company must be publicly disclosed and approved, in order to guarantee the interests of companies and shareholders.

Commission proposes greater shareholder power over executive pay

Around 10000 listed companies across Europe might have to change the way they pay their top executives.

These measures “will help to steer investments towards a more long-term oriented approach and will ensure more transparency for listed companies and investors,” said Italian Partito Democratico rapporteur Sergio Gaetano Cofferati (S&D).

Britain introduced similar rules in 2002 to allow shareholders intervening in cases of excessive pay.

Over the last three years, shareholders of big firms including HSBC, BP and Barclays revolted against board remuneration. It was as seen the biggest wave of protests since votes on remuneration were introduced.

Improved transparency

The new legislation will also help companies to identify their shareholders to facilitate dialogue with them.

Meanwhile, institutional investors, including pension funds and insurance companies, will have to increase their transparency.

EU lawmakers back rewards for long-term shareholders

Long-term shareholders in companies in the European Union will be rewarded with extra voting rights or loyalty dividends if a draft law backed by a panel of EU lawmakers comes into force.

These institutional investors and other asset managers will be required to disclose how they integrate shareholder engagement in their investment strategies and explain why they have chosen not to do it.

The rules will also force advisors influencing votes in general meetings to disclose the information, sources and methodologies related to the advice provided.

The agreement still requires the Council’s green light. National governments will have two years to transpose the new rules into their national legal framework.

Sajjad Karim MEP (ECR, Britain), Legal Affairs spokesman, welcomed the new rules: “After two long years of negotiations the EU has finally caught up with the UK in promoting a culture of performance-related pay. This will start to rebuild public confidence in large companies who have been seen to reward directors' with no clear link to performance.”

Vice-Chairman of the European Parliament’s Economic and Monetary Affairs Committee, Markus Ferber (EPP, Germany) said: Excessive pay packages as we have seen in the past should come to an end. However, the right legislative framework is one thing, shareholders actually exercising their rights and taking responsibility yet another. So I hope that not only the letter, but also the spirit of the law will be applied in the future.”


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