U.K. Industry Group Faults EU Plan To Enhance Shareholder Say on Pay

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By Joe Kirwin  

April 9 --The Confederation of British Industry, a leading British industry trade organization, April 9 criticized a European Commission corporate governance proposal to hold the approximately 10,000 listed company executives more accountable on pay on the ground that it risks blurring the roles between company boards and management and would result in inefficient micromanagement by shareholders.

At the same time, the European Trade Union Confederation, the leading European trade union coalition, blasted an accompanying Commission proposal that would establish a single-member private liability company to help small companies handle cross-border business in the EU single market. The trade union said the plan had loopholes that would facilitate tax and labor law evasion.

European Internal Market Commissioner Michel Barnier presented the overall corporate governance overhaul plan that includes amendments to revise EU shareholder-rights legislation (EC/2007/36). The measure targets executive pay and rules for institutional investors, asset managers, intermediaries and proxy advisers.

Barnier Seeks Long-Term Planning

“The last years have shown time and time again how short-term planning damages European companies and the economy,” Barnier said. “Sound corporate governance can help change that. Today’s proposals will encourage shareholders to engage more with the companies they invest in and to take a longer-term perspective of their investment.”

The former French government minister, who has directed the overhaul of the EU financial services and banking regulatory framework over the last four and a half years, made it clear that his priority is targeting executive pay, which has skyrocketed even though shareholder value has declined and average employee salaries have either stagnated or declined.

“I cannot explain this enormous gap between the level of pay and corporate governance, and it does leave you with a pretty bitter taste in your mouth when you see the excessive levels of pay in some cases,” Barnier said, also noting that, in France from 2006 to 2012, executive pay has gone up by 94 percent while shareholder value has dropped by 27 percent.

He said that in the EU overall, the average shareholder value has dropped by 34 percent, while executive salaries have increased by 46 percent.

Disclosure

To give shareholders more power over executive pay, the European Commission proposal would oblige companies to disclose “clear, comparable and comprehensive” information on their remuneration policies and how they are put into practice.

“We are not calling for a cap on executive pay,” Barnier said. “Thankfully, we do not have a command-and-control economy. But a company would have to put its remuneration policy to a binding shareholder vote. The policy would need to include a maximum level for executive pay.”

“It would also need to explain how the pay and employment conditions of employees of the company were taken into account when setting policy, including explaining the ratio between average employees and executive pay,” Barnier said.

The Confederation of British Industry (CBI), which represents the majority of U.K.-based companies, said it accepted a proposal designed to boost a company’s long-term value, but that the Commission plan goes too far.

“Any changes to the rights and responsibilities of shareholders should not blur their roles with those of company boards and management otherwise they will result in inefficient micro-management by shareholders,” the CBI said in a statement. “It should not be shareholders responsibility to set specific pay levels or vote on pay ratios. It is right that shareholders focus on the big picture when it comes to pay and in the United Kingdom they have a vote on company pay policy but the remuneration committee should retain responsibility for specific pay levels.”

The attempt to overhaul EU corporate governance is the second for Barnier. In 2011, he proposed a new EU company statute that was rejected in the Council of Ministers. However, the Commission has put forward the new legislative changes under a new legal base that does not require unanimous consent, as did the 2011 proposal.

The new proposal will be taken up in the Council of Ministers and the European Parliament following elections that will take place May 22-25. The legislation will be pursued by a new commissioner, as Barnier will leave office in October.

Union Warns of Tax, Labor Law Avoidance

The EU member states and the new Parliament also will address a proposal requiring each EU country to establish a uniform set of rules for a single liability company. The measure would give companies the right to set up business online without having to travel to a cross-border EU member state.

The European Trade Union Confederation (ETUC), the largest trade union coalition in the EU, said the plan would lead to tax and labor law evasion because it fails to define the size of the company and allows the company to register in a country where it does not operate.

“Taken together the directive would enable larger companies to misuse the legislation and choose a country of registration with lower taxes and less protection of workers,” ETUC said in a statement. “It would also enable businesses in EU member states where worker representation on the board is a legal requirement to avoid national worker representation rules by registering their business in another country where such rules do not exist.”

 

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com


Information on the European Commission corporate governance proposals is online at http://ec.europa.eu/internal_market/company/docs/modern/cgp/shrd/140409-shrd_en.pdf.