There’s been a subtle but important shift in the wording about shareholders’ interest in executive pay in a new draft of the OECD’s long-standing corporate governance principles.
The new draft, which has just been released for consultation, now calls for the disclosure of remuneration of board members and key executives.
This updates the earlier version, dating back to 2004, which stated simply: “The Principles call for the disclosure of remuneration policy [our italics] by the board.”
In addition, the new draft principles, which are being updated in the wake of the financial crisis, say it is important for shareholders to not only know the pay policy but also the “total value of compensation arrangements made pursuant to this policy”.
And, in a further change, the draft’s wording strengthens investor oversight over executive pay: “Shareholder approval should also be required for any material changes to existing [pay] schemes.”
This has been changed from the earlier text, which read: “In an increasing number of jurisdictions, any material changes to existing schemes must also be approved.”
As revealed by Responsible Investor last month, the OECD is also looking at the investment chain and the role of stock exchanges in the new draft guidance.The 37-page document, which features ‘track changes’ notation showing the modifications from the 2004 version, is open for consultation until January 4 next year.
“The principles are a public policy instrument”
The OECD stresses it is a work in progress that has been prepared by the Secretariat of the OECD Corporate Governance Committee to solicit input from business and labour representatives, civil society and other stakeholders.
“The Principles of Corporate Governance are a public policy instrument intended to assist governments and regulators in their efforts to evaluate and improve the legal, regulatory and institutional framework for corporate governance,” the Paris-based body says.
The principles were first released in 1999 and were last updated in 2004. The review is being conducted to ensure their “continuing high quality, relevance and usefulness” after the crisis.
The review is being led by Marcello Bianchi, the head of the corporate governance division at Italian regulator Consob, in his role as chair of the OECD’s Committee on Corporate Governance.