2004/913/EC: Commission Recommendation of 14 December 2004 fostering an appropriate regime for the remuneration of directors of listed companiesText with EEA relevance
Date: 2004-12-14
Institutions: European Commission
Subjects: activity report, board of directors, dissemination of information, organisation, pay, stock-exchange listing

29.12.2004

EN

Official Journal of the European Union

L 385/55

COMMISSION

COMMISSION RECOMMENDATION

of 14 December 2004

fostering an appropriate regime for the remuneration of directors of listed companies

(Text with EEA relevance)

(2004/913/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
establishing the European
Community, and in particular the second indent of Article
211 thereof,

Whereas:

(1)

(2)

(3)

In May 2003, the Commission adopted a Communi-
cation on ‘Modernising Company Law and enhancing
Corporate Governance in the European Union – A plan
to move forward’ (1). Among a range of proposals to
strengthen shareholders' rights and modernise the board
for an initiative aimed at
it provides
of directors,
encouraging
for
an appropriate
directors' remuneration in the Member States.

regulatory

regime

should facilitate

The form, structure and level of directors' remuneration
are matters falling within the competence of companies
shareholders. This
and their
the
recruitment
and retention of directors having the
qualities required to run a company. However, remu-
neration is one of
the key areas where executive
directors may have a conflict of interest and where due
account should be taken of the interests of shareholders.
Remuneration systems should therefore be subjected to
appropriate governance controls, based on adequate
information rights.
to
In this respect,
respect
fully the diversity of corporate governance
systems within the Community, which reflect different
Member States' views about the roles of corporations
and of bodies
the determination of
policy on the remuneration of directors, and the remu-
neration of individual directors.

responsible for

is important

it

The disclosure of accurate and timely information by the
issuers of securities builds sustained investor confidence
and constitutes an important tool for promoting sound
the Community. To
corporate governance throughout
that end,
it is important that listed companies display
appropriate transparency in dealings with investors, so
as to enable them to express their views.

(1) COM(2003) 284 final.

in

defined

should consider

treatment. As
as

(4) When implementing this Recommendation, Member
the specificities of collective
States
investment undertakings of
the corporate type and
should prevent the various types of collective investment
undertaking from being subjected, unnecessarily,
to
regards collective investment
unequal
Directive
Council
undertakings
85/611/EEC of 20 December 1985 on the coordination
of laws, regulations and administrative provisions relating
to undertakings for collective investment in transferable
securities (UCITS) (2), that Directive already provides for a
set of specific governance mechanisms. However,
in
order to prevent the unnecessarily unequal treatment of
those collective investment undertakings of the corporate
type not subject to harmonisation at Community level,
Member States should take into account whether and to
what extent these non-harmonised collective investment
undertakings
governance
mechanisms.

to equivalent

subject

are

(5)

(6)

(7)

should be provided with a clear and
Shareholders
comprehensive overview of the company's remuneration
policy. Such disclosure would enable shareholders to
assess a company's approach to remuneration and
strengthen a company's accountability to shareholders.
It should include elements related to compensation.
This
should not, however, oblige the company to
disclose any information of a commercially sensitive
nature which could be detrimental
to the company's
strategic position.

directors'

regarding

Adequate transparency should also be ensured in the
policy
should
include the disclosure of information on issues such as
notice periods and termination payments under such
contracts which are directly linked to directors' remu-
neration.

contracts. This

In order to give shareholders an effective chance to
express their views and an opportunity to debate the
remuneration policy on the basis of a comprehensive
disclosure, without having to initiate the process of
tabling a shareholders'
the remuneration
policy should be an explicit item on the agenda of the
annual general meeting.

resolution,

(2) OJ L 375, 31.12.1985 p. 3. Directive as last amended by Directive
2004/39/EC of the European Parliament and of the Council (OJ L
145, 30.4.2004, p. 1).

L 385/56

EN

Official Journal of the European Union

29.12.2004

(8)

(9)

(10)

the remuneration
In order to increase accountability,
policy should be submitted to the annual general
meeting for a vote. The vote at that meeting could be
advisory,
the relevant bodies
the rights of
responsible for directors' remuneration would not be
altered. An advisory vote would not entail any obligation
either to amend directors' contractual entitlements or to
amend the remuneration policy.

so that

Shareholders should also be provided with the infor-
mation on the basis of which they can hold individual
directors accountable for the remuneration they earn or
have earned. Disclosure of the remuneration of individual
directors of the company, executive and non-executive or
supervisory directors,
in the preceding financial year is
therefore important to help them appreciate the remu-
neration in the light of the overall performance of the
company.

Variable remuneration schemes under which directors are
remunerated in shares, share options or any other right
to acquire shares or to be remunerated on the basis of
share price movements, and any substantial change in
such schemes, should be subject to the prior approval
of the annual general meeting. The approval should relate
to the scheme of remuneration and the rules applied to
establish the individual remuneration under the scheme
but not to the individual remuneration of directors under
the scheme.

(11)

In view of the importance attached to the question of
remuneration of directors it is appropriate to monitor the
implementation of this Recommendation and in case of
insufficient implementation to consider further measures,

HEREBY RECOMMENDS:

S e c t i o n I

S c o p e a n d d e f i n i t i o n s

1.

Scope

1.1. Member States should take all appropriate measures to
ensure that listed companies having their registered office
in their territory have regard to this Recommendation.
They should however duly consider the specific features
of collective investment undertakings of the corporate
type under the scope of Directive 85/611/EEC. Member
States
the specific features of
collective investment undertakings of the corporate type
which are not subject to that Directive and whose sole
investment of money raised from
purpose

should also consider

the

is

investors in a diversified range of assets and which do
not seek to take legal or managerial control over any of
the issuers of its underlying investments.

1.2. Member States should also take all appropriate measures
to ensure that listed companies which are not incor-
porated in one of the Member States but which have
their primary listing on a regulated market established
in their territory have regard to the provisions of this
Recommendation.

1.3. Member States should ensure that this Recommendation
applies to the remuneration of the chief executive officers
in circumstances where they are not members of the
administrative, managerial and supervisory bodies of a
listed company.

2.

2.1.

2.2.

3.

3.1.

3.2.

Definitions for the purposes of this recommendation

‘Director’, means any member of
managerial or supervisory bodies of a listed company.

the administrative,

‘Listed company’, means a company whose securities are
admitted to trading on a regulated market within the
meaning of Directive 2004/39/EC in one or more
Member States.

S e c t i o n I I

R e m u n e r a t i o n p o l i c y

Disclosure of the policy on directors' remuneration

Each listed company should disclose a statement of the
remuneration policy of the company (the remuneration
statement). It should be part of an independent remu-
neration report and/or be
included in the annual
accounts and annual report or in the notes to the
the company. The remuneration
annual accounts of
statement
listed
also be posted on the
should
company's website.

year

remuneration for
appropriate,

The remuneration statement should mainly focus on the
the
company's policy on directors'
following
the
and,
financial
subsequent years. It should also contain an overview of
the manner in which the remuneration policy has been
implemented in the previous financial year. Particular
emphasis should be laid on any significant changes in
the listed company's remuneration policy as compared to
the previous financial year.

if

29.12.2004

EN

Official Journal of the European Union

L 385/57

3.3.

The remuneration statement should set out at least the
following information:

change to the remuneration policy should be an explicit
item on the agenda of the annual general meeting.

(a) explanation of the relative importance of the variable
remu-

and non-variable components of directors'
neration;

(b) sufficient information on the performance criteria on
which any entitlement to share options, shares or
variable components of remuneration is based;

(c) sufficient information on the linkage between remu-

neration and performance;

(d) the main parameters and rationale for any annual
bonus scheme and any other non-cash benefits;

(e) a description of the main characteristics of supple-
mentary pension or early retirement schemes for
directors.

4.2. Without prejudice to the role and organisation of the
relevant bodies responsible for setting directors' remu-
be
nerations,
submitted to the annual general meeting of shareholders
for a vote. The vote may be either mandatory or
advisory.

remuneration statement

should

the

Member States may, however, provide that such a vote
will be held only if shareholders representing at least 25
% of the total number of votes held by shareholders
the annual general meeting
present or represented at
be without
should
it. This
request
prejudice to the right for shareholders to table a reso-
lution in accordance with national provisions.

nevertheless

The disclosure of that information in the remuneration
statement should nevertheless not entail the disclosure of
information of a commercially sensitive nature.

4.3.

The listed company should inform shareholders entitled
to receive notice of the meeting of the intention to table
a resolution approving the remuneration statement at the
annual general meeting.

3.4.

3.5.

inter alia,

The remuneration statement should also summarise and
explain the listed company's policy with regard to the
terms of the contracts of executive directors. This should
include,
information on the duration of
contracts with executive directors, the applicable notice
periods
termination
payments and other payments linked to early termination
under contracts for executive directors.

and details of provisions

for

used

process

determining

the
remuneration policy for directors

Information concerning the preparatory and decision-
listed
making
for
should
company's
also be disclosed. This should include information,
if
the mandate and composition of a
applicable, about
remuneration
external
names
consultants whose services have been used in determi-
nation of the remuneration policy, and the role of the
shareholders' annual general meeting

committee,

the

of

4.

Shareholders' vote

4.1. Without prejudice to the role and organisation of the
relevant bodies responsible for setting directors' remu-
nerations, the remuneration policy and any significant

S e c t i o n I I I

R e m u n e r a t i o n o f

i n d i v i d u a l

d i r e c t o r s

Disclosure of the remuneration of individual directors

The total remuneration and other benefits granted to
financial year
individual directors over
should be disclosed in detail in the annual accounts or
in the notes to the annual accounts or, where applicable,
in the remuneration report.

the relevant

The annual accounts or the notes to the annual accounts
or, where applicable,
the remuneration report should
show at least the information listed in points 5.3. to
5.6. for each person who has served as a director of
the listed company at any time during the relevant
financial year.

5.

5.1.

5.2.

L 385/58

EN

Official Journal of the European Union

29.12.2004

5.3. As regards the remuneration and/or emoluments,
following information should be presented:

the

(d) any change in the terms and conditions of existing
share options occurring during the financial year.

(a)

services performed under

the total amount of salary paid or due to the director
relevant
for
the
financial year,
the
including where
attendance fees fixed by the annual general share-
holders meeting;

the
appropriate

(b) the remuneration and advantages received from any

undertaking belonging to the same group;

5.5. As

regards

supplementary
following information should be presented:

pension

schemes,

the

(a) when the pension scheme

a defined-benefit
scheme, changes in the director's accrued benefits
under that scheme during the relevant financial year;

is

(c) remuneration paid in the form of profit sharing
and/or bonus payments and the reasons why such
bonus payments and/or profit sharing were granted;

(b) when the scheme is a defined-contribution scheme,
details of the contributions paid or payable by the
listed company in respect of that director during the
relevant financial year.

(d) where

such payment

any
is
significant additional remuneration paid to directors
for special services outside the scope of the usual
functions of a director;

allowed,

legally

(e)

the compensation paid to or
receivable by each
former executive director in connection with the
termination of his activities during that financial year;

(f)

total estimated value of non-cash benefits considered
as remuneration, other than the items covered in
points (a) to (e).

5.4. As regards shares and/or rights to acquire share options
and/or all other share-incentive schemes, the following
information should be presented:

(a)

the number of
granted by
the
financial year and their conditions of application;

share options offered or

company during

shares
relevant

the

(b) the number of share options exercised during the
for each of them, the
relevant financial year and,
number of shares involved and the exercise price or
the value of the interest in the share incentive scheme
at the end of the financial year;

5.6.

6.

6.1.

it

is permissible under national

If
law or under the
Articles of Association of the listed company to make
such payments, amounts should be shown which the
company, or any subsidiary or company included in
the company's consolidated annual accounts, has paid
by way of loans, advance payments and guarantees to
each person who has served as a director at any time
during the relevant financial year, including the amount
outstanding and the interest rate.

S e c t i o n I V

S h a r e - b a s e d r e m u n e r a t i o n

Shareholders' approval

right

Schemes under which directors are remunerated in
shares, share options or any other
to acquire
shares or to be remunerated on the basis of share price
movements should be subject to the prior approval of
shareholders by way of a resolution at the annual general
meeting prior to their adoption. The approval should
relate to the scheme in itself and not to the grant of
such share-based benefits under that scheme to individual
directors.

6.2. Approval by the annual general meeting should be

obtained for the following:

(c)

the number of share options unexercised at the end
of the financial year; their exercise price, the exercise
date and the main conditions for the exercise of the
rights;

(a) grant of

share-based schemes,

including

share

options, to directors;

29.12.2004

EN

Official Journal of the European Union

L 385/59

(b) the determination of their maximum number and the

main conditions of the granting process;

concerning the resolution should be made available to
shareholders.

(c)

the term within which options can be exercised;

(d) the conditions for any subsequent change in the
if this is appropriate

exercise price of the options,
and legally permissible;

(e) any other long term incentive schemes for which
directors are eligible and which is not offered under
similar terms to all other employees.

6.3.

The annual general meeting should also set the deadline
within which the body responsible for directors' remu-
neration may award these types of compensation to indi-
vidual directors.

7.2.

6.4. Any substantial change in the terms and conditions of
the schemes should also be subject to the approval of
shareholders by way of a resolution at the annual general
meeting prior to their adoption. In those cases, share-
holders should be informed of
the
proposed changes and should be given an explanation
of the effect of the proposed changes.

terms of

the full

6.5.

6.6.

If such arrangement is permissible under national law or
under the Articles of Association of the listed company,
any discounted option arrangement under which any
rights are granted to subscribe to shares at a price
lower than the market value of the share on the date
when the price is determined, or the average of
the
market values over a number of days preceding the
date when the exercise price is determined, should also
receive the approval of shareholders.

Points 6.1. to 6.4. should not apply to schemes in which
participation is offered on similar terms to employees of
the listed company or any of its subsidiary undertaking
whose employees are eligible to participate in the scheme
and which has been approved by the annual general
meeting.

S e c t i o n V

I n f o r m a t i o n a n d f i n a l
p r o v i s i o n s

The notice should contain the full text of the share-based
remuneration schemes or a description of their principal
terms, and the names of the participants in the schemes.
It should also set out the relationship of the schemes
with the overall directors' remuneration policy.

The draft resolution should clearly refer either to the
scheme itself or to the summary of its principal terms.

Information should also be made available to share-
holders about how the company intends to provide for
the shares needed to meet its obligations under incentive
schemes. In particular it should be clearly stated whether
the company intends to purchase the necessary shares in
the market, whether it holds them in treasury, or whether
it will issue new shares.

7.3.

This information should also provide an overview of the
costs of the scheme to the company in view of the
intended application.

7.4.

Such information should be posted on the
company's website.

listed

8.

Final Provisions

8.1. Member States are invited to take the necessary measures
to promote the application of this Recommendation by
30 June 2006 and are invited to notify the Commission
of measures taken in accordance with this Recommen-
dation in order to allow the Commission to monitor
closely the situation and, on this basis, to assess the
need for further measures.

8.2.

This Recommendation is addressed to the Member States.

7.

Information

Done at Brussels, 14 December 2004.

7.1.

Prior to the annual general meeting where a draft reso-
lution is tabled in accordance with point 6.1. and in
accordance with national law and/or the Articles of Asso-
the listed company, an information notice
ciation of

For the Commission

Charlie McCREEVY
Member of the Commission