|
Professor Ferrarini gave a presentation on the
provisional paper ‘Executive Remuneration in the
EU: Comparative Law and Practice’ which he is writing
with Niamh Moloney of Queen’s University, Belfast and
Cristina Vespro of Université Libre de Bruxelles.
“In this paper,” he said “we
try to highlight first of all the theory of corporate governance
as applied to executive remuneration. Then we examine the
rules applicable in Europe for executive remuneration. We
also did some statistical research, looking at remuneration
reports and similar documents of FTSE Europtop 300 companies” |
| Annual disclosure is really the main issue about
executive remuneration. Are shareholders and the public in
general informed enough about executive remuneration? If we
look at the UK, as you well know there is a special report
on Directors’ remuneration. The amounts which are given
as to executive remuneration are individualised and the details
distinguish between fixed, variable and share-based remuneration.
(click slide to enlarge it) |
 |
| Of course we don’t know the value of share-based
remuneration because the new accounting standards are not
yet in place. If we look at Ireland, the situation is similar
except that there is a ‘comply or explain’ system.
In France, there is a voluntary recommended annual report
and then by law there is a special report on stock options.
Information is individualised and it is possible to distinguish
the various components of remuneration. The same, more or
less, holds for Italy. We have a remuneration report within
the corporate governance report and this is by virtue of the
Italian Exchange rules and then under CONSOB regulations,
the individual amounts of remuneration are shown in the notes
to the accounts. Similarly for the Netherlands except there
isn’t any remuneration report there and the situation
in Sweden is not very different |
 |
There is a second group of countries where the
situation is very different. In Austria, there isn’t
any remuneration report. The amounts that are disclosed under
the ‘comply or explain’ rule are only the aggregate
amounts. The individual amounts would be recommended however.
It is also possible under the corporate governance code to
distinguish between the different components of remuneration.
In Belgium, the situation is rather poor. Only aggregate amounts
are disclosed. |
| The same is true, more of less for Denmark and
Finland. In Germany, by law only aggregate amounts of executive
remuneration are disclosed. Under the Cromme code, also the
individual amounts should be disclosed bit if we look at German
corporates, especially those in the FTSE Europtop 300, all
of them only give aggregate data except for one company (five
in 2002) which gives individual amounts. In Greece and Luxembourg,
only total amounts are given. The same is true for Portugal
and Spain. In Spain if we look at the corporate governance
codes, they recommend individual disclosure of remuneration
but in fact the recent Aldama Report admits that companies
do not comply with this recommendation. |
| Looking at annual disclosure of stock options,
in the countries in this first group, we have individualised
information and we have information about rights granted,
rights exercised and rights unexercised. In all countries
it is required by public regulation. In Ireland however it
is ‘comply or explain’. |
 |
 |
Looking at the second group, you can tell from
the colours that the situation is quite different. Aggregate
info is only given. In two countries, Austria and Germany,
details are given as to grants and exercise of stock options.
In Germany this is provided by the Cromme code. Actually this
recommends individual disclosure but in fact all the companies
follow a different approach and only give aggregate data also
with respect to stock options. |
| Ad hoc disclosure is disclosure that occurs
from time to time regarding the purchase and sale of shares
by insiders. It also concerns the granting, vesting and exercise
of stock options. This is a complex area of regulation. In
the UK there are quite stringent rules as to timely disclosure
of insider dealing. Insiders have to disclose in timely fashion
to the company, to the regulators and to the market. These
rules are also applicable to the granting, vesting and exercise
of stock options. |
 |
| The same points apply more or less for Ireland.
In France there is public regulation but it is more limited
- timely disclosure as to the company but only half-yearly
to the market and the regulator. There is no disclosure with
respect to granting, vesting and exercise of stock options.
In Italy disclosure occurs under the rules of the Italian
exchange. It is in principle a quarterly disclosure to the
company and the market. In addition, stock option disclosure
is recommended by CONSOB. In the Netherlands, the situation
is almost similar to the UK. In Sweden, there is timely disclosure
to the regulator and the market. |
 |
Looking at the other group of companies, the
situation is a little bit better than for annual disclosure.
Countries like Austria and German have a system of disclosure
as to insider dealing which is also applicable at least to
the exercise of stock options. |
| If we look at Prospectuses, there is disclosure
as to remuneration but strangely enough the two countries
which were the best with regard to disclosure until now only
give aggregate data on directors’ remuneration in Prospectuses.
This is not easy to explain except that the European Directive
on Prospectuses only requires aggregate remuneration. Individual
remuneration is given in France, Italy and Sweden. |
 |
 |
In the second group of countries, only total
disclosure of remuneration is made in Prospectuses and only
in some countries is information given as to stock options.
|
| Looking at governance issues, this slide shows
the Competent Body for executive remuneration, whether a Remuneration
Committee is foreseen or not, what is the composition of that
Committee, and what are its tasks. The situation in the UK
is probably familiar to all of you. The Remuneration Committee
is foreseen by the Combined Code, the Committee must be composed
of independent directors, and the tasks of the Committee are
well known. The situation is the same in Ireland. |
 |
| If we look at France, where a Remuneration Committee
is foreseen by the corporate governance reports and it is
recommended, it is made up of a majority of independent directors
. The reason here is to be found in the concentrated ownership
structures of listed companies in countries like France and
Italy. Also in Italy, a Remuneration Committee is foreseen
under the Italian exchange corporate governance code. However
the only requirement regarding the composition of the Remuneration
Committee is that it should consist of a majority of non-executives.
This would in theory allow executives to be part of the Committee.
I feel that this rule should be changed and at least the French
approach should be followed in this country. In Spain also,
the composition of the Remuneration Committee should merely
reflect the composition of the Board of Directors. |
 |
If we look at the other group of countries,
in only a few of them is a Remuneration Committee foreseen
– in countries which have a two-tier board like Austria
and Germany even though in Austria for instance the Committee
could also have more general tasks. We should also consider
that the notion of independent director is rather different
in countries which accept a two-tier system. |
| As to the role of shareholders, the only two
countries which assign a specific role to shareholders as
to remuneration policy at least are the UK and Ireland. In
the other countries, shareholders are mainly involved for
the approval of stock option plans particularly when they
imply the issue of new shares. |
 |
 |
Here I try to give grades from 1 to 5 to the
different countries. There is quite a lot of discretion as
always when assigning grades. First there are the UK and Ireland,
just ahead of France, Italy, Sweden and the Netherlands. |
| In the second group, Austria and Germany lead
the pack but some countries have very low scores. These countries
should really try to improve their regulation with regard
to executive remuneration. |
 |
 |
If we look at CEO remuneration, based on a summary
of statistical data which has been collected from the FTSE
Europtop 300 companies, the total pay has been calculated
for executives but this data does not include stock options
which would be too complex to calculate. France shows the
highest total pay (These statistics of course can only be
derived in those countries that publish such information).
|
| It is interesting to look at the percentage
of base salary with respect to total pay as well as the percentage
of bonuses with respect to total pay. The data is not uniform
in this respect. You can see that not all the countries make
individual disclosure of CEO pay composition. |
| Whilst it is not possible to calculate the value
of stock options, we can at least look at percentages –
for instance the outstanding management stock options versus
total outstanding stock options (meaning employees’
stock options) you will see that in the UK, management has
got about 10% of total outstanding. In France, this figure
is 19. In Italy, this is not published. In the Netherlands
it is about 10 percent, in Germany about 17 percent. |
 |
| What is also interesting is the ratio of outstanding
CEO stock options and outstanding management options. The
figure here is almost 50% in the UK , 38% in France and the
Netherlands and 32% in Sweden. |
| Finally, one piece of data that
is particularly interesting is the number of companies that
have adopted stock option plans. In the UK, all companies
(of which there are 53) have adopted stock option plans. They
have also adopted Long Term Incentive Schemes which makes
them different from the rest of Europe. In France the figure
is 34 companies out of 36 which shows that even in continental
Europe the adoption of stock option plans is on the rise.
In Italy, it is 23 out of 30. In the Netherlands and Sweden
it is 13 out of 14 and in Germany, 15 out of 24. |
