The second Shareholder Rights Directive (SRD II), which was passed by the European Council and European Parliament in spring 2017, aims at improving shareholders’ engagement and strengthening shareholder rights through various measures. One such measure is giving shareholders a stronger say on board remuneration. The SRD II must be implemented into national law of Member States by June 2019 at the latest.

The SRD II calls for companies to have a shareholders’ vote on the remuneration policy for the board in the event of any significant change, at least every four years. The SRD II leaves it to national legislators to decide whether this vote will be binding or only play an advisory role. In addition, shareholders have to vote on the remuneration report every year, as an advisory vote only. Whereas in countries like Germany, the UK, France and the Netherlands a say on pay is already common practice, companies in Austria will be confronted with shareholders’ votes on board remuneration for the first time.

The increased involvement of shareholders in board remuneration cannot be overestimated. Board remuneration should not be misunderstood as a mere decision on the ‘right’ pay. In fact, when setting the framework for board pay, decisions have to be taken on company targets, including sustainability aspects and company strategy, as well as operational planning and others. In essence, it is about how companies are being managed by the board and which strategic and operation targets they pursue. In the future, shareholders will have a bigger influence on these matters by way of their voting rights on board remuneration – and so will institutional investors and proxy advisers, but what about their stance on this issue and the predictability of their voting behaviour?

Jul-Sep 2019 Issue

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