Expected new EU rules on executive pay in public companies. How might they impact Belgian listed companies?

Nicolas de Limbourg 19 December 2013


Is Belgium a step ahead of the game?

Over the past five years, pay policies in public companies and financial services have been under deep scrutiny. To increase transparency on pay, there has been a shift from mere recommendations to more stringent rules set down in law, especially in the field of financial services.
While the CEBS guidelines (CRD III) and the imminent CRD IV requirements lay out very strict rules to ensure that pay practices do not encourage excessive risk taking in financial institutions, more flexibility seems nonetheless to have been left to public companies in most EU jurisdictions.
That said, with its 2010 Corporate Governance Act, Belgium does appear to be a step ahead of some other EU countries, as it requires Belgian listed companies to set up independent remuneration committees, get explicit shareholder approval for remuneration reports, including much detail on applicable pay practices, and apply strict deferral rules for variable pay. Items for which a “comply or explain” approach is allowed have also now become the exception in Belgium, the rule being that listed organisations should actually comply with the provisions of the Corporate Governance Act except where they get explicit approval from shareholders.

The EU Commission notes faltering progress on corporate governance

Late 2012, the EU Commission stressed that poor progress had been achieved on corporate governance practices across Members States over the recent past. The EU Commission particularly observed that there was a perceived lack of shareholder interest in holding management to account for their decisions and actions and that there was some evidence of shortcomings in the application of corporate governance codes when reporting is done on a “comply or explain” basis.

Action plan with future initiatives

On 12 December 2012, the EU Commission published a press release and action plan for future initiatives in the area of corporate governance and executive pay.
To ensure that shareholders actually have their “say on pay”, the EU Commission plans to further increase transparency on remuneration policies and, as is the case in Belgium, to require shareholder approval of pay policies, possibly by amending the Shareholders’ Rights Directive in 2013.
Plus, the Commission has announced initiatives to improve the quality of corporate governance reports, especially where “comply or explain” rules apply.
It is interesting to note that the Commission has welcomed the Belgian Corporation Governance Committee initiative, which has appointed independent experts to assess the overall quality of corporate governance reporting and make recommendations.

Impact on your pay practice

As indicated, Belgium might well be a step ahead of some other EU jurisdictions in the corporate governance area. That is not to say, however, that the new EU requirements will not go beyond the Belgian Corporate Governance Act; if they mirror those applicable in financial services, tremendous changes can be expected on variable pay level and structures with Belgian listed companies.
We will keep you posted once more details of the new EU requirements on pay policy and corporate governance practice are known.