Directors Remuneration And Golden Parachutes.Ppt

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A summary of recent developments in Belgium with regard to the remuneration of directors in listed companies and government owned companies, and a summary of the CBFA\'s circular on remuneration of important persons within financial institutions.
Client seminar presentation of 29 March 2010

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Directors Remuneration And Golden Parachutes.Ppt

  1. 1. Directors Remuneration and Golden Parachutes: a State of Play David Ryckaert, Advocaat-Avocat Simont Braun Louizalaan 149/20 Avenue Louise Brussel 1050 Bruxelles www.simontbraun.eu March 29th, 2010
  2. 2. Background • Financial crisis • Banks in distress → Ethical and social view on management remuneration → Setting management remuneration is not the result of sole economic factors 2
  3. 3. International reactions (1) • G20: Framework for Strong Sustainable and Balanced Growth – Financial Stability Board • European Corporate Governance Forum • US 3
  4. 4. International reactions (2) → Main ideas: - Role of listed companies & systemic organisations - Transparency - Variable pay  performance related and deferral  Clawback  Stock options - Severance pay:  2 years maximum  None if poor performance - Recommendations 4
  5. 5. Our neighbors: recommendations on parachutes • UK combined code 06/08 • 1 year (?) • Germany : corporate governance code 06/08 • 2 years (total compensation past year) • France : MEDEF recommendation 10/08 • 2 years (basic + variable) • Dutch corporate governance code 12/08 • 1 year basic (exceptionally 2 years) 5
  6. 6. Belgium: evolution • Labour agreements act (art. 82, §5) • « Corporate governance act » (2002) • Code Lippens (2004) o = Corporate Governance Code (2009), except for parachutes • Code Buysse (2005) o = Code Buysse II (2009) • Audit committee act (2008) • (?) « Corporate governance act 2010 » 6
  7. 7. Belgium: corporate governance code (°2004, updated 2009)  Scope : listed companies  Recommendation : comply or explain  Sanctions : - Market perception - Liability  Remuneration committee : principle 5  Reason: compensation management & board members → Board of directors => Conflict of interests 7
  8. 8. Belgium: remuneration committee • Composition: Non-executive directors (only) Independent directors (majority) HOWEVER : non compliance : explain : nominations • Powers: Remuneration policy - Main conditions (including pension and parachute) - Elements and pondering - Basic en variable Individual remuneration including a « parachute » 8
  9. 9. Belgium: parachutes • Parachutes  12 months basic + variable - Basic = last month - Variable : paid in the last year(s)  18 months in certain cases only - Change of control - Change of strategy - Number of years of service in a previous position - Condition for obtaining the candidate's agreement  12 months basic if the performance related criteria are not met 9
  10. 10. Belgium: aborted projects • Max. indemnity of 12/18 months • 100% tax on indemnities exceeding EUR 1,000,000 • 30% additional tax on indemnities exceeding … months / … EUR • Amendments applicable to ongoing contracts 10
  11. 11. Belgium: imminent act (1)  Wetsontwerp tot versterking van het deugdelijk bestuur bij de genoteerde vennootschappen en de autonome overheidsbedrijven en tot wijziging van de regeling inzake het beroepsverbod in de bank- en financiële sector  Status: Senate  Listed companies & certain autonomous state owned companies 11
  12. 12. Belgium: imminent act (2)  Corporate governance statement Incorporated in the annual report Includes information such as: - Indication of the applicable corporate governance code - Comply or explain - Internal control and risk management - Remuneration report  Cf. corporate governance code 2009 12
  13. 13. Belgium: imminent act (3) • Remuneration committee  Mandatory for (large) listed companies  Composition: - Non-executive directors (only) - Independent directors (majority)  Advises on / proposes: - Remuneration policy - Individual remuneration Including variable remuneration, long term bonusses, stock options, parachutes, etc. 13
  14. 14. Belgium: imminent act (4) • Mandatory publications  On global basis: - General principles - Compensation executives (other than CEO) - Principles & criteria for variable remuneration - (clawback)  On individual basis: - All compensation for non executive directors - All compensation for CEO - Stock options - Indemnities for early termination o Agreed o Applied 14
  15. 15. Belgium: imminent act (5) • Parachutes  > 12 months (or > 18 months in case of a motivated advice of the remuneration committee) - Preliminary vote by the ordinary shareholders meeting - Prior consultation of the works council • Variable remuneration  Criteria - In contract - Min. 3 year vesting for stock options (exceptions) - Depend on results in y2 and y3 after grant  If to independent director (art. 526 : - Prior approval by the ordinary shareholders meeting - Prior consultation of the works council 15
  16. 16. Belgium: CBFA Circular • CBFA circular 26 November 2009 (n° 34)  Scope: financial institutions  Goal: provide financial institutions with principles on a sound remuneration policy for “important persons”  Principles - Variable remuneration capped and performance linked - Minimum deferment period of variable remuneration (partially) - Results of individual & company, cost of capital, liquidity, LT vs. ST - Independent remuneration committee (recommended) - Communication to shareholders  Follow-up - March 15, 2010: remuneration policy should be communicated to the CBFA - June 30, 2010: remuneration principles should be applied  Supervision - Qualitative and quantitative measures 16
  17. 17. Conclusion • Transparency • Quid privacy protection • New « functions » - liability ? « andere leiders » - draft act « personen met sleutelfuncties » Circular CBFA Advice « Raad van State » • Freedom of contract ? 17

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