Tackling corruption effectively
Table 1: Disclosure policies for executive remuneration in selected European countries Current disclosure
Individual disclosure Detailed pay policy
Aggregate disclosure Limited pay policy
Country
Anticipated future disclosure
HIGH
UK Ireland Netherlands France
More information required on the link between pay and performance, and a focus on peer groups
MEDIUM
Sweden Germany Switzerland Italy Norway
Pressure to disclose information on individual board members rather than just the CEO/ highest paid executive, with more information on remuneration policies
LOW
Finland Spain Portugal Denmark
Pressure to provide individual disclosure and increased information on remuneration policies
Source: ‘Executive Compensation Disclosure in Europe’, Executive Remuneration Perspective, no. 3 (2007).
US rules adopted in 2006 set an example and require that pay disclosure needs to be disaggregated per director, all cash and non-cash benefits be listed and the determination of remuneration packages be explained and compared with peer groups. In Europe, the European Commission has reinvigorated its call for better disclosure in the wake of the financial crisis, as disclosure standards vary across the European Union (see table 1). Disclosure in other regions has an even a longer way to go, as the situation of major Asian countries illustrates (see table 2). Giving shareholders a stronger voice in deciding executive pay has been pioneered in the United Kingdom. The ‘Say on Pay’ initiative was introduced in 2002 to provide shareholders with an advisory vote on executive compensation. The programme is widely credited with forcing company boards to explain and justify in much more detail how pay packages are determined. Similar provisions have since been adopted in Australia, the Netherlands, Norway and Sweden, and they could become part of the standard toolbox of corporate governance.9
(2) Making boards more independent and effective The job of the board of directors is to define a company’s strategy and major policies. They are charged with appointing, monitoring and, if necessary, dismissing managers, overseeing executive compensation, ensuring the reliability of financial accounts and ensuring the effectiveness of internal controls and external audits, as well as compliance with laws and regulations. Board members should be accountable to shareholders and honour their fiduciary 9 S. Davis, Does ‘Say on Pay’ Work? Lessons on Making CEO Compensation Accountable, Policy Briefing no. 1 (New Haven, CT: Yale School of Management, 2007).
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