Bloomberg News

EU Finance Chief Targets Executive Pay After Banker Bonus Victory

April 09, 2014

EU Financial Services Chief Michel Barnier

European Union financial services chief Michel Barnier will introduce measures tomorrow that call for shareholders throughout the 28-nation bloc to vote on remuneration policies for company directors at least every three years. Photographer: Georges Gobet/AFP via Getty Images

European Union financial services chief Michel Barnier, who has already won caps on banker bonuses, is seeking to give shareholders a veto over the pay packages for executives at publicly traded companies.

Barnier published measures today that call for shareholders throughout the 28-nation bloc to vote on remuneration policies for company directors at least every three years.

“It does leave you with a pretty bitter taste in your mouth when you see the excessive level of pay in certain cases,” Barnier told reporters in Brussels today.

Barnier’s push for more shareholder control of remuneration adds to a salvo of EU moves to rein in bonuses. Since the outbreak of the 2008 financial crisis, the EU has agreed to ban banker bonuses of more than twice fixed pay, and approved pay rules for managers of hedge funds and other EU investment vehicles known as Undertakings for Collective Investment in Transferable Securities, or UCITS.

The Barnier plan would also require companies to give annual reports on the application of their remuneration policy, giving the shareholders a chance to register concerns about pay structure.

Insufficient Progress

National governments have made “insufficient progress’ in giving shareholders a binding say on remuneration, according to the commission, leading to an uneven patchwork of practices.

A total of 13 EU countries empower shareholders to vote on pay. France and Austria are among EU countries where no such right exists, while in nations including Italy and Spain the vote is non-binding, according to commission data.

The proposals are ‘‘more onerous in some respects’’ than similar rules introduced in the U.K. last year, Alexandra Beidas, an employee incentives lawyer at Linklaters LLP in London, said in an e-mail.

The Barnier plans ‘‘would require companies to set a ratio between the average remuneration received by directors compared to the average received by the company’s full-time employees and also set the relative proportion of fixed and variable pay which can be awarded to directors,’’ she said.

Barnier is in charge of formulating draft financial rules at the Brussels-based commission, the EU’s executive arm.

‘Clear Indication’

Under his proposals, companies would be compelled to pay directors in accordance with a shareholder approved remuneration policy. That policy should be reviewed, and submitted to shareholder vote, at least every three years.

The document setting out the policy should give ‘‘a clear indication of the minimum and maximum amounts that can be awarded,’’ as well as the ratio of fixed to variable pay.

It should also set out the maximum level of pay available to directors, as well as what possibilities exist for the company to reclaim bonus payments for directors whose performance turns out to be less strong than thought.

The measures would also hand shareholders more control over so-called related-party deals where a company carries out transactions with its own managers or institutional investors.

Other parts of the Barnier plans would set minimum disclosure rules for asset managers and institutional investors, and seek to make it easier for single shareholder companies to operate cross-border within the EU.

The plans for listed companies don’t seek to impose caps on pay and are focused on boosting shareholder awareness and oversight.

Barnier’s proposals require approval by governments and the European Parliament to take effect.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net Peter Chapman


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