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.
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.
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.
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.