Increased focus on management remuneration a new reality facing listed companies

The 2019 AGM season

09.05.2019
Management remuneration was the hottest shareholder topic during the 2019 AGM season, and to a greater extent both institutional and private investors are making demands for transparency and remuneration within reason. Everything points towards a continued shareholder spotlight on remuneration over the coming years. This is supported by the implementation of SRD II, which entails new regulatory requirements for listed companies with regard to remuneration policy and remuneration reporting. In this article, Niels Kornerup, partner at Bech-Bruun and chairman of a number of general meetings, gives a brief introduction to the “new world” meeting companies. Niels Kornerup will go into further detail at a meeting at VP Securities on 12 June 2019.

Some companies have already begun to implement the new regulation and I advise all companies to start considering how to handle the new demands

Niels Kornerup, partner at Bech-Bruun

Over the past couple of years, both institutional and private investors have increased their focus on management remuneration, and during the 2019 AGM season this focus further intensified. Shareholders asked more questions and put forward more comments concerning remuneration – and in some cases they voted against the Board’s remuneration proposals. In addition, this year we have seen an interesting new trend, since to a greater extent shareholders have considered management remuneration in relation to different key figures, including the company’s general salary level, the profit ratio and the size of share buy-back programmes – and to a lesser extent in relation to the share price development. Concerning remuneration of the management board, we see different approaches among institutional investors and private investors. Institutional investors generally accept a higher incentive level if the programmes are transparent, aligned with the interests of the company and in line with comparable EU companies. In contrast, private investors generally find management remuneration too generous,” says Niels Kornerup.

SRD II implies significant changes and increased transparency

During the coming two years, listed companies will have to pay even more attention to remuneration issues.

On 4 April 2019, the legislative package implementing the amendments to the Shareholder Rights Directive in Denmark was adopted by the Danish parliament and will enter into force on 10 June 2019 (the general implementation deadline). According to the new regulation, listed companies must prepare a remuneration policy and a remuneration report. The requirements of the remuneration policy and report will apply to annual general meetings convened in fiscal years beginning on 10 June 2019 or later. For listed companies with the calendar year as the fiscal year, this means that they will have to vote on the remuneration policy at the annual general meeting in 2020, and that the remuneration report must be presented at the following annual general meeting in 2021. Compared to the existing regulation, in several ways the new requirements will significantly change how listed companies should handle the management’s remuneration, how they should formulate the remuneration policy and, not least, how they should report on remuneration.

Virtually all listed companies have formulated a remuneration policy according to the existing rules and recommendations, but with SRD II the framework will change and will make higher demands of listed companies. According to the new rules, all components of management remuneration must be included in the remuneration policy, and the general principles governing remuneration and changes in remuneration must be in line with the new regulation. Some companies have already begun to implement the new regulation and I advise all companies to start considering how to handle the new demands, including what to include in the remuneration policy and how to formulate the individual elements of the policy – because the policy is binding. I am sure that most companies will need some internal processing time to prepare the new remuneration policy,” says Niels Kornerup.

He continues: “It is vital to prepare the remuneration policy carefully, given that the companies cannot remunerate their management outside the remuneration policy and that drawing up the policy can be quite complex, depending on the remuneration structure and components concerned. Preparation of the remuneration report will also be challenging. Reporting on remuneration at a detailed level is a new discipline for most companies and the SRD II rules are quite comprehensive, implying that companies will have to report within a number of areas, and that they will have to generate new five-year data on a number of key figures.”

Read the legislative package in Danish here

Flemming Merring

Head of Issuer Services

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