On 23 March 2009, the European Corporate Governance Forum (the Forum)7 published two statements regarding:

  1. executive remuneration principles for listed companies; and
  2. cross-border aspects of Corporate Governance Codes.

1. Statement concerning executive remuneration principles

In its statement, the Forum deals with (i) disclosure of remuneration, (ii) the process of setting remuneration and (iii) the substance of remuneration.

The disclosure of the remuneration policy and of individual remuneration of directors should be mandatory for all listed companies. The Forum recommends that such disclosure requirements be included in an EU directive.

In setting a director’s remuneration there should be no involvement whatsoever by directors. This should be left to supervisory directors and shareholders. The obligation of Member States to lay down rules of process with regard to remuneration policy in national Corporate Governance Codes should be laid down in an EU directive.

The Forum acknowledges that it is for the company and the shareholders to set the remuneration policy but does recommend that a number of best practices be followed, such as:

  • The level of variable pay should be reasonable in relation to the total remuneration package;
  • Variable pay should be linked to factors that represent real growth of the company;
  • Shares awarded to directors under long-term incentive plans should be paid out only after a period in which previously fixed performance conditions have been met;
  • Severance pay for directors should be limited to two years of annual pay and not be paid in case of poor performance.

The Forum considers that Member States should implement these best practices in national corporate governance codes and it proposes that the European Commission issue a recommendation to this end.

2. Statement concerning cross-border issues of Corporate Governance Codes

In this statement the Forum refers to article 46a of Directive 2006/46 amending the fourth and seventh company law directive. This article requires listed companies to include a statement concerning their corporate governance in their annual report. The article does not impose an obligation on Member States to designate a code that listed companies must apply. Nor does it deal with potential consequences of cross-border listings, such as application of codes from different jurisdictions or an absence of applicability of any code. In order to compel companies listed in one of the Member States to apply at least one code but no more than one code, the Forum recommends the following rules:

  • A requirement for listed incorporated in the EU to apply a corporate governance code either in the Member State of their registered seat or in the Member State of their primary listing;
  • If a company applies the code of another Member State than that of its registered seat or primary listing, the Member State of its registered seat or, as the case may be, primary listing may not require more than that the company explains in which ways its corporate governance practices deviate from those set out in the corporate governance code of that Member State.

The full text of the statements is available on the Forum’s website.

Site European Corporate Governance Forum