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Regime for the remuneration of directors of listed companies

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Regime for the remuneration of directors of listed companies

The financial troubles of October 2008 and the economic crisis have highlighted remuneration practices for directors which favour the short term and sometimes reward failure. This Recommendation aims to improve the existing Community framework concerning the remuneration of the directors of listed companies. In this regard, Member States are invited to organise national consultations in order to apply these new principles.


Commission Recommendation 2009/385/EC of 30 April 2009 completing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies (Text with EEA relevance).


The existing Community framework is based on the principle of performance-based remuneration of directors of listed companies (hereinafter referred to as “directors”). This Recommendation aims at giving additional guidelines on the way in which best practices can be defined to prepare an appropriate remuneration policy. To this end, it deals with some aspects of the structure of the remuneration of directors and governance thereof.

Remuneration policy

Structure of the policy on directors’ remuneration

In order to ensure that remuneration is performance-related, the new Recommendation requires a balance to be established between fixed and variable remuneration and makes the allocation of the variable component conditional upon predetermined and measurable performance criteria.

In order to promote the long-term sustainability of companies, the new Recommendation also provides for:

  • a balance between long-term and short-term performance criteria;
  • deferment of payment of the variable component;
  • a minimum period for the vesting of share options and shares;
  • the retention of a minimum number of shares until the end of the mandate.

Termination payments (“golden parachutes”) are also subject to quantified limitations and should not be paid in the event of failure. It is suggested that payments do not exceed the equivalent of two years of the non-variable component of the remuneration.

The new Recommendation also introduces the principle of proportionality of remuneration within the company, namely a rating which compares the remuneration of directors to that of other executive directors on the board and employees or executives of the company.

As a last resort, companies should reclaim variable components of remuneration that are paid on the basis of data which later proves to be manifestly misstated.

Governance of the policy on directors’ remuneration

Disclosure of the policy on directors’ remuneration

This Recommendation is based on Recommendation 2004/913/EC which stipulates that each listed company must publish a statement on its remuneration policy. This Recommendation goes further by stating that this statement must be clear and easily understandable.

The statement on remunerations should also provide information on:

  • the choice of performance criteria;
  • the methods applied to determine whether performance criteria have been fulfilled;
  • the payment of variable components of the remuneration;
  • the payment of termination payments;
  • the vesting of share-based rights to remuneration;
  • the policy on the retention of shares;
  • the composition of peer groups of companies the remuneration policy of which has been examined in relation to the establishment of the remuneration policy of the company concerned.

Shareholders’ vote

In order to improve transparency, shareholders should participate in board meetings and use their voting rights with regard to directors’ remuneration.

Remuneration committees

Remuneration committees play a key role in establishing a responsible remuneration policy. In order to strengthen the functioning and responsibility of the remuneration committee, the Recommendation suggests that at least one of its members should have sufficient expertise in remuneration matters. Furthermore, the Recommendation contains an obligation for members of the remuneration committee to attend the board meeting at which the statement on remuneration is on the agenda in order to be able to provide explanations to shareholders. Finally, in order to avoid conflicts of interests for remuneration consultants, the Recommendation provides that consultants who advise the remuneration committee must not also advise other departments of the company.

Remuneration of non-executive directors or members of the supervisory board

In order to avoid conflicts of interests, the Recommendation provides that the remuneration of non-executive board members or members of the supervisory board should not include share options.


The financial crisis of October 2008 revealed more and more complex remuneration structures. They are often based on short-term performance, which can lead to excessive remuneration of directors, not justified by performance. This Recommendation complements and strengthens Recommendations 2004/913/EC and 2005/162/EC which constitute the Community framework for the remuneration of directors of listed companies.


Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Report on the application by Member States of the EU of the Commission 2009/385/EC Recommendation (2009 Recommendation on directors´ remuneration) complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies [COM(2010) 285 final – Not published in the Official Journal].

This Report concerns the application of Recommendation 2009/385/EC in the different Member States. It emphasises that 10 Member States have already applied at least half of the recommendations. Moreover, some Member States are working on the implementation of several recommendations in their law or Corporate Governance Code. According to the Report, the Member States’ poor understanding of certain aspects of the Recommendation such as the concept of deferment or share based remuneration is the reason for this unsatisfactory implementation. The Commission therefore intends to improve the coherence and effectiveness of EU action in the area of the remuneration of directors of listed companies.

Last updated: 14.09.2010