The European Commission’s European Corporate Governance Forum (the Forum), has issued a public statement concerning best practices that should govern the remuneration of executive directors.
The best practices include:
- That the level of variable pay should be reasonable in relation to total pay level.
- That variable pay should be linked to factors that represent real growth of the company and real creation of wealth for the company and its shareholders.
- That severance pay for executive directors should be restricted to two years of annual remuneration and should not be paid if the termination is for poor performance.
- The Forum considers that Member States should ensure that the best practices should be incorporated into national corporate governance codes and suggests that the Commission should issue a recommendation to this effect.
Furthermore, it suggests that a directive would be appropriate to ensure that listed companies disclose their remuneration policy and the pay of individual directors. The Forum also suggests that a directive would be appropriate to ensure that listed companies disclose their remuneration policy and the pay of individual directors.
The Forum also considers that any rules should distinguish between executive pay in listed companies in general and remuneration in the financial services sector due to the potential high earnings of non-board members of the latter.
View European Forum sets out best practices for directors' pay, 24 March 2009
View Statement from the European Corporate Governance Forum on executive remuneration, 24 March 2009