The Legal Affairs Committee of the European parliament has backed a draft law giving shareholders the right to vote on directors’ remuneration, in a bid to encourage companies to adopt greater transparency and tie pay more closely to performance
In addition, the proposed legislation would require some large companies to disclose, country by country, information on tax rulings, taxes paid and public subsidies received. It forms part of a revision of the shareholders’ rights directive which was originally announced in April 2014.
The proposals include plans for shareholders to vote at least every three years on a company’s remuneration policy for directors. Such policies should state clear criteria for awarding fixed and variable remuneration, including all bonuses and benefits, as well as the main contract terms, including details of supplementary pension or early retirement schemes.
However, MEPs deleted a requirement that the remuneration policy state maximum remuneration. The policy should also explain how the pay and employment conditions of employees are taken into account and how it contributes to the long-term interests of the company.
‘Relevant stakeholders’, in particular employees, should be entitled to express their views, via their representatives, on the remuneration policy, MEPs said.
To improve tax transparency, MEPs inserted a requirement for ‘large undertakings and public-interest entities’ to publish information, country by country, on profit or loss before tax, taxes on profit or loss, and public subsidies received. Companies with more than 500 employees and a balance sheet total of €86m (£62m) or a net turnover of €100m (£72m) should also disclose information on tax rulings.
To promote ‘long-term’ shareholding, MEPs inserted provisions that would require member states to introduce specific mechanisms to reward long-term shareholders. Options include additional voting rights, tax incentives, loyalty dividends or loyalty shares. It would be up to member states to define ‘long term’, but it should not mean less than two years.
The committee approved the amended rules by 13 votes to 10. The proposals will now have to go to a first reading in the European parliament.
According to the European Commission, only 13 EU member states currently give shareholders ‘a say on pay’, either through a vote on directors’ remuneration policy and/or report. Only 15 require disclosure of the remuneration policy and 11 require disclosure of individual directors’ pay.
