At many of the annual shareholders meetings, the remuneration of the directors will soon be prominently on the agenda. It is one of the most important governance issues for companies. In 2019, companies already received a taste of the increasing interest in this topic of shareholders and employees. We expect that this attention will only increase. It is not only shareholders who look critically at the remuneration of the directors and everything that is related to it. The legislator is also alert. De new European Shareholder Rights Directive (SRD II) demands the transparency of the company around the remuneration of directors and senior managers. The reward must also be in line with the long-term value creation.

Active involvement

An increasing number of directors, supervisors renumeration committees and investors are using corporate governance analytics to review remuneration policy. That helps determine an adequate reward structure. And overseeing it. The wide-ranging discussion on Shell-CEO’s remuneration, Ben van Beurden, illustrates that. It more than doubled to € 20.1 million in 2018. Important detail: the data shows that his wages are 143 times higher than the average wage of the British staff of Shell. At Shell’s most recent meeting, shareholders had the chance to vote on the pay package, 10 percent of the shareholders voted against.

Equal to employees

We also see how stakeholders can appreciate a long-term remuneration policy. For example, insurer ASR came into the news positively when it wanted to permanently put an end to bonuses and pay in shares for the board. After the agreement with the shareholders, it is also stipulated that there are no variable remuneration schemes for the members of the Board of Directors, thus the remuneration policy is equal to that of the other employees in the company.

Effect new law

It is clear that companies need to be aware of the effects of their remuneration policy. We see a positive effect if companies do talk about the remuneration policy with shareholders and other stakeholders before the general meeting of shareholders, underpinning this with data. We see signals that this reduces the number of oppositions to the proposed policy.

A well-founded remuneration policy is no longer optional. Dutch companies must draw up their remuneration reporting for the 2019 financial year in line with the new requirements of SRD II. This includes a comprehensive overview of the remuneration and benefits of each individual director covered by the advisory vote of shareholders. In addition, Dutch listed companies need to explain how their salary strategy connects with the long-term goals. The new law also gives shareholders more participation and influence. Since the introduction of the law, companies need 75 percent of shareholders’ votes to adapt their salary strategy. This was previously 50 percent. All the more reason for companies – also non-listed ones – to put their remuneration policy into perspective.

For more information about how CGLytics’ executive compensation data and tools informs companies of how they compare to their peers reumuneration practices click here.

About the Author

Aniel Mahabier: CEO and founder of CGLytics

Mahabier interviews and writes for Management Scope about the remuneration of directors and corporate governance analytics. This blog was published in Management Scope.

Latest Industry News, Views & Information

Concern over Wesfarmers’ executive pay?

Wesfarmers, which owns some of Australia’s most recognizable brands, sees concerns from shareholders and proxy advisors regarding its CEO and executive pay during the last proxy season

The DOs and DON’Ts when rethinking incentive plans

Why have 75% of first-time say-on-pay votes failed in 2019? A large number of negative votes can be attributed to incentives. Companies need to rethink their incentive plans and make sure metrics truly benchmark performance.

Sims Metal Management: Tracking Pay for Performance Over Time

A key element in an assessment of remuneration outcomes is the payout track record and payout variability over several years. Sophisticated remuneration structures should result in pay outcomes which vary in line with performance.

Access the Glass Lewis' 2020 Pay-for-Performance Model, Grade and Peers via CGLytics

CGLytics has replaced Equilar and is the only authorized distributor of Glass Lewis’ compensation models and peers from January 1, 2020.

Read more