The European Parliament voted in favor of a “say-on-pay” measure to increase shareholders’ rights, along with another measure that would require multinationals to disclose the amount of profits made, taxes paid and any public subsidies received on a country-by-country (CbC) basis.
The say-on-pay measure would let shareholders vote at least every three years on remuneration policies for directors of European Union (EU) listed companies.
Background. In June 2007, the shareholders’ rights directive became part of EU law. The directive:
- Introduced minimum standards to ensure that shareholders have timely access to the relevant information ahead of general meetings and a simple means to vote at a distance,
- Established minimum standards for the right to ask questions, and
- Abolished share blocking, a mechanism to facilitate the voting process by providing a cutoff date before shareholders’ meetings, among other things.
EU member states were given two years to include the directive in their laws.
Subsequently, revisions were proposed in response to corporate governance weaknesses concerning the companies, their boards, shareholders, intermediaries, and proxy advisors. The proposed revisions, which included the CbC reporting and say-on-pay measures, were aimed at increasing transparency and fostering long-term shareholders’ commitment to companies.
CbC tax reporting requirement. Members of European Parliament (MEPs) inserted the CbC tax reporting requirement with respect to “large undertakings” and “public-interest entities.” Public-interest entities include listed companies, insurance firms, and companies designated by EU member states as having “significant public relevance,” MEPs said.
Shareholders’ say on directors’ pay. MEPs indicated that a company’s 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.
According to the European Commission, only 13 EU states currently give shareholders “a say on pay,” either through a vote on directors’ remuneration policy and/or in a report. Only 15 states require disclosure of the remuneration policy, and 11 require disclosure of individual directors’ pay.
Next steps. A final decision will be made after a meeting between the European Parliament, the European Commission and the European Council. If the measures are approved, EU states will be required to incorporate them into their laws.