The recently published Corporate Governance Code for Belgian listed companies contains new provisions on directors’ and executives’ remuneration. It will take effect at the start of 2020.

On 9 May 2019, the Belgian Corporate Governance Committee published the 2020 version of the Corporate Governance Code for listed Belgian companies.

The new Code will enter into effect on 1 January 2020, simultaneously with the new Belgian Companies Code, which was adopted on 23 March and published on 4 April.

The new Code takes into account the new management model for listed companies prescribed by the new Belgian Companies Code, which can either be ‘unitary’ (‘moniste’ or ‘monistische’, with a one-tier Board of Directors) or ‘dualistic’ (‘duale’, with a two-tier Supervisory Board and Management Board).

The most striking provisions of the new Code concerning directors’ and executives’ remuneration are set out below.

Remuneration policy

The Board of Directors must draw up a remuneration policy and submit the policy to a vote at the general shareholders’ meeting (the so-called ‘say on pay’). The Code thereby anticipates the implementation in Belgium of the EU Shareholders’ Rights Directive, which contains a similar requirement. The Code states that when a significant proportion of the votes are cast against the remuneration policy, the company should consider adapting its remuneration policy.

Non-executive directors

For non-executive directors, the Code confirms and specifies the recommendation that they do not receive ‘any performance-related remuneration that is directly related to the results of the company.’

Also, for non-executive directors, the Code recommends that they do not receive stock options, but that part of their remuneration should be paid in the form of shares in the company. These shares should be held until at least one year after the end of the board mandate and at least three years after the time of award.

Executive directors

The Code recommends that the board should set a minimum threshold of shares to be held by the executive directors. This shareholding requirement is entirely new for Belgium.

The Code suggests that when the company awards short-term variable remuneration to the executive management (e.g. an annual bonus), this remuneration should be subject to a cap. The Code does not specify what the cap should be. In the banking industry, Belgium has already introduced a 50% cap on short-term variable pay.

The Code confirms a minimum vesting period for stock options of at least three years. It also recommends that the company does not facilitate hedging.

The Code suggests including clawback clauses in executives’ contracts, which would enable the company to recover variable remuneration paid, or withhold the payment of variable remuneration, in certain specified circumstances. The Code explicitly adds ‘insofar as enforceable by law’ (which is at least questionable for executives who have employment contracts). Until now, listed companies were only obliged to disclose whether or not they had such clawback clauses in contracts.

Comply or explain

The provisions of the Code are still based on a ‘comply or explain approach’, meaning that listed companies are not obliged to implement them, but should explain why if they do not. The new Code also contains recommendations for an increased level of detail of such explanations.