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Brussels, 23rd February 2004

Corporate governance: Commission consults on directors' remuneration

The European Commission has launched a consultation on directors' remuneration. Responses will be taken into account in the Commission's forthcoming Recommendation to Member States on this issue, scheduled for September 2004. The consultation covers among other things disclosure of remuneration policy and of individual remuneration and shareholder approval of directors' share option schemes. The deadline for responses is 12th April 2004.

Internal Market Commissioner Frits Bolkestein said "Getting directors' remuneration right means motivating directors and rewarding achievement. Getting it wrong breeds shareholder and public discontent and damages companies' reputations and ultimately their performance. I believe we need to foster a regulatory framework which empowers shareholders and encourages companies to get their policies on directors' remuneration right, without meddling in commercial decisions on individual remuneration. This consultation is a step towards developing a Commission Recommendation aimed at achieving that balance. So I encourage all interested parties companies, individual and institutional shareholders and regulators - to respond. We will listen to them."

The main issues on which the Commission is seeking responses are:

  • should the Recommendation invite Member States to take regulatory measures to ensure that listed companies comply with all its provisions? This would contrast with the approach in some Member States which deal with the issue in a non-legislative way, for example via a Corporate Governance Code.

  • should the Recommendation cover only listed companies or also non-listed companies?

  • how should the Recommendation define "directors" given the wide range of board systems used in EU Member States?

  • how each EU listed company should disclose in its annual accounts and annual report (or in the notes to the annual accounts) the remuneration policy for directors for the next financial year? Which elements for example the performance-related elements of directors' remuneration, supplementary pensions and contract policy should be included in that disclosure? Should such information be an explicit item on the agenda of the annual general meeting (AGM) and should it be submitted to a vote?

  • what information on the remuneration of individual directors should be disclosed? Disclosure of the remuneration of individual directors - both executive and non-executive or supervisory - in the preceding financial year is important so shareholders can assess the appropriateness of the remuneration in the light of the overall performance of the company. The consultation paper proposes that such information should include at least information on salary and other fixed elements of remuneration, share option schemes and supplementary pension schemes. It also proposes specific additional disclosure for non-executive and supervisory directors.

  • should variable remuneration schemes, under which directors are remunerated in shares or share options, and any substantial change in such schemes be subject to the prior approval of the Annual General Meeting of Shareholders? Such approval would relate to the scheme in itself, in other words the system of remuneration and the rules applied to establish individual remuneration under the scheme, rather than to the remuneration of individual directors.


The consultation paper is available at:

Responses should be concise, focused principally on the questions raised and arrive no later than 12th April 2004. They should be sent to DG MARKT G3, European Commission, B-1049 Brussels. Responses may also be sent by e-mail to

Unless an explicit request for confidentiality is made, contributions will be treated as documents that the Commission can make public.


The Commission's Action Plan to modernise company law and enhance corporate governance in the EU, announced in May 2003 (see IP/03/716 and MEMO/03/112) contains a set of initiatives aimed at strengthening shareholders' rights, reinforcing protection for employees and creditors, increasing the efficiency and competitiveness of European business and boosting confidence on capital markets.

Public consultation on the Plan as a whole, which ended in mid-September 2003, showed a strong consensus behind the main measures within it. The Commission is now committed to further open consultation on each of those key measures and the consultation exercise on directors' remuneration is therefore the first of several arising from the Action Plan.

The Action Plan recognises the need for shareholders to be able to appreciate fully the relationship between the past and future performance of companies and directors' pay and to make decisions on aspects of remuneration linked to the share price such as share options for directors. The Commission intends therefore to adopt a Recommendation on directors' remuneration by September 2004. It will then monitor the application of the Recommendation to identify whether any further regulatory action is required in the medium term.

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