Rules on executive pay to be tightened, while works councils get more say

The most significant amendments that the Second Chamber voted in favour of are:

• A supervisory director at a large company governed by the structure regime automatically becomes a member of the company’s remuneration committee if he or she was appointed to the supervisory board on the works council’s recommendation;
• Companies may only submit their remuneration policy to the general meeting for approval after the works council has had the opportunity to share its views and give advice on the proposed policy. An explanation has to be given to the general meeting if the proposed remuneration policy deviates from the works council’s advice. The works council chairman has the right to speak in the general meeting;
• A majority of at least 75% of the votes cast at the general meeting is needed to approve the remuneration policy. However, the company’s articles of association may set a lower majority as a threshold;
• The remuneration policy needs to contain a “stakeholder-oriented” explanation on how public support was taken into account when formulating the policy; and
• All listed companies must submit the remuneration report annually to the general meeting for an advisory vote. Under a previous legislative proposal, small and medium-sized companies only had to submit their remuneration report to the annual general meeting for discussion.

Click here for the Shareholder Rights Directive and here for our previous In Context article about the implementing bill.