Shareholders to Get Say on Pay

A revised Shareholder Rights Directive has recently been published that will give shareholders greater rights in the determination of executive pay.

The proposed measures will apply to listed companies and, among many changes, will allow shareholders to vote on the remuneration policy of the company and on the remuneration report. The former vote (only) will be a binding vote. The remuneration of directors will have to be set in accordance with the remuneration policy, except for that of new directors for which there is a limited exception.

The remuneration policy will be required to establish clear criteria for the setting of remuneration, howsoever paid, and to provide details of the fixed and variable components of executive remuneration. In addition, companies will be required to show the ratio between the average of directors' remuneration and that of non-director full-time employees, and will be required to state why this ratio is considered to be appropriate.

The principal terms of the directors' service contracts will also have to be made public. Interestingly, this includes notice periods and any payments due upon the termination of their contracts.

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