When is binding not binding? When it is advisory of course. In what appears to be a classic European ‘fudge’, there is still no clarity about whether shareholders will get a binding vote on executive pay at annual meetings across Europe.
The European Parliament voted yesterday on its amendments to feed into the revision of the Shareholder Rights Directive, with the headlines centring on country-by-country reporting.
But under the radar somewhat was the issue of shareholders’ rights around remuneration policy.
According to the European Commission, only 13 member states currently give shareholders “a say on pay”, either through a vote on directors’ remuneration policy and/or in a report. Only 15 member states require disclosure of the remuneration policy and 11 require disclosure of individual directors’ pay.
The text approved by the Parliament in its plenary session in Strasbourg yesterday would at first glance appear to clear up this state of affairs, stating: “Member States shall ensure that companies establish a remuneration policy as regards directors and submit it to a binding vote of the general meeting of shareholders.”
Unusually clear for an EU document: so far so good. Yet the very next paragraph states: “However, MemberStates may provide that the votes by the general meeting on the remuneration policy are advisory.”
This contradictory stance hints at the level of lobbying the directive has been subject to. This can be shown by the fact that amendments put forward by the text’s ‘rapporteur’ – Italian MEP Sergio Cofferati – on “a mechanism in order to promote shareholding on a long-term basis and foster long-term shareholders” have not made the final text.
It would have included various advantages for long-term shareholders such as additional voting rights, tax incentives, loyalty dividends/shares as well as greater employee involvement in corporate decision-making.
The adopted text says companies’ policy on directors’ pay should explain how it contributes to the long-term interest of the company and set clear criteria for awarding fixed and variable remuneration, including all bonuses and benefits. “The value of shares should not play a dominant role in the financial performance criteria and the share-based remuneration should not represent the most significant part of directors’ variable remuneration,” the MEPs added.
The text, as amended by Parliament, was approved by 556 votes to 67, with 80 abstentions. The Parliament has opted to enter into “informal talks” with member states to thrash out a final version of the legislation.