The European Commission (EC) is adopting measures to improve the corporate governance of around 10,000 companies listed on Europe’s stock exchanges.
Listed companies across the European Union (EU) will need to win shareholder approval on pay for their top executives under a draft law aimed at making firms more answerable to their owners and addressing public anger over hefty pay rises for senior executives. Companies would have to publish clear and comparable information on their remuneration policy for executives and secure shareholder backing for it every three years.
“This would contribute to competitiveness and long-term sustainability of these companies,” said internal market and services commissioner, Michel Barnier.
“Recent years have shown time and time again how short-termism damages European companies and the economy. Sound corporate governance can help to change that.”
Under the proposals, EU member states would now be required to provide in their national legislation a company law form for single-member private limited liability companies with the same requirements across the EU.
“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 during a news conference.
He cited the example of France, where corporate shareholders are not offered a say on executive pay. Average remuneration rose by 94% between 2006 and 2012 while over the same period average share prices fell by a third. By contrast, since Sweden adopted a binding shareholder say on pay, share prices and executive pay have moved largely in lockstep.
The latest proposals follow a 2012 action plan on European company law and corporate governance published in March.
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