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) 284 final} {COM(2010) 286 final} {SEC(2010) 670}
Date: 2010-05-26
Institutions: European Commission
Subjects: audit, board of directors, corporate governance, dissemination of information, economic recession, financial institution, financial services, pay, shareholder, stock-exchange listing

EN 

EN 

   EN 

 
EUROPEAN COMMISSION 

Brussels, 2.5.2010 
COM(2010) 285 final 

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) 284 final} 
{COM(2010) 286 final} 
{SEC(2010) 670} 

EN 

   EN 

 
 
  
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 

(Text with EEA relevance) 

1. 

OBJECTIVE OF THE REPORT 

The  financial  crisis  exposed  serious  weaknesses  in  the  way  financial  markets  are  regulated 
and  supervised.  There  is  broad  consensus  that  compensation  schemes  based  on  short-term 
returns,  without  adequate  consideration  for  the  corresponding  risks,  contributed  to  the 
incentives that led financial institutions’ engagement in overly risky business practices. Wider 
concerns have also been voiced about recent substantial increases in executive remuneration, 
the  increased  importance  of  variable  pay  in  the  composition  of  directors’  remuneration  and 
related short term focus of remuneration policies across all sectors of the economy. 

The  Commission's  Recommendations  on  directors´  remuneration  in  listed  companies 
(2004/913/EC) and on the role of non executive/supervisory directors and supervisory board 
committee  (2005/162/EC)  did  not  address  all  the  issues  exposed  in  the  financial  crisis.  In 
particular, the Recommendations do not require executive remuneration to be aligned with the 
long  term  interest  of  companies.  In  this  light,  the  ECOFIN  Council's  conclusions  of  2 
December  2008  invited  the  Commission  "to  update  its  recommendation  so  as  to  promote  a 
more  effective  control  by  shareholders,  and  encourage  a  stronger  link  between  pay  and 
performance,  including  on  leaving  pay  (“golden  parachutes”)".  Therefore,  the  Commission 
adopted  in  April  2009  a  new  Recommendation  (2009/385/EC)  on  the  structure  of  directors' 
remuneration  and  on  the  process  of  design  and  operation  of  the  remuneration  policy  for 
directors  in  listed  companies,  which  sets  out  a  series  of  new  principles  complementing  the 
previous Recommendations.  

An  appropriate  remuneration  policy  should  ensure  pay  for  performance  and  stimulate 
directors  to  ensure  the  medium  and  long  term  sustainability  of  their  companies.  The 
Commission´s 2009 Recommendation gives further guidance in order to attain this Goal. It is 
based  on  best  practices  for  the  design  of  an  appropriate  remuneration  policy.  It  focuses  on 
certain  aspects  of  the  structure  of  directors'  remuneration  and  the  governance  of  directors´ 
remuneration, including shareholder supervision. 

The objective of this report is to evaluate whether Member States have acted in order to give 
effect  to  the  main  principles  of  the  2009  Recommendation  on  directors'  remuneration.  The 
Commission is issuing in parallel a report analysing the endorsement of the Recommendation 
(2009/384/EC)  on  remuneration  policies  in  the  financial  services  sector.  This  report  also 
considers  what  measures  have  been  taken  by  Member  States  to  give  effect  to  some  main 
principles  of  the  2004  Recommendation  on  directors´  remuneration,  in  particular  principles 
related to disclosure of remuneration policy and individual remuneration of directors and the 

EN 

2 

   EN 

 
shareholders´  vote  on  the  remuneration  statement,  with  a  view  to  analysing  whether  further 
steps have been taken in this field following the financial crisis.  

Member States were invited to take the necessary measures to promote the application of the 
2009 Recommendation by 31 December 2009, for instance trough legislation or best practice 
rules based on the "comply or explain" principle. 

"Comply or explain" gives flexibility to companies. Some companies may find that a certain 
recommendation is ill-suited to their specific characteristics and/or compliance with a given 
standard would be excessively burdensome or difficult. These companies are not required to 
comply  with  that  standard  as  long  as  they  disclose  these  deviations  and  provide  an 
explanation to the market. 

This Report is based on the replies of Member States to a Commission Staff questionnaire as 
well  as  the  examination  of  national  corporate  governance  codes  and  laws  of  the  Member 
States.  This  Report  is  completed  by  a  Commission  staff  working  paper  which  accompanies 
this  Report  and  contains  the  tables  that  indicate  the  extent  to  which  Member  States  have 
followed the requirements of the Recommendation. 

2. 

MAIN FINDINGS OF THE EVALUATION 

A minority of Member States1 has implemented at least half of the recommendations. At the 
moment, a number of Member States2 is still working on the implementation of (some of) the 
recommendations in its law or Corporate Governance Code. Many Member States3 require or 
recommend  that  variable  remuneration  is  linked  to  performance  and  promotes  long  term 
sustainability  of  the  company.  A  minority  of  Member  States  requires  or  recommends 
deferment of variable remuneration4 and clawback5, while a majority recommends or requires 
limitation  of  termination  payments6.  Share  based  remuneration  should  be  linked  to 
performance criteria in many Member States, but only a minority of Member States7 requires 
or recommends vesting and non-exercise periods, which are subject to performance criteria. A 
minority  of  Member  States8  has  taken  action  to  promote  shareholder  voting  with  regard  to 
remuneration  issues.  A  minority  of  Member  States9  has  endorsed  the  recommendations 
related to Remuneration Committees.  

Endorsement of the disclosure and shareholder vote provisions of the 2004 Recommendation 
has  increased  significantly  in  recent  years.  There  is  also  a  trend  among  Member  States  to 
regulate these issues in a binding way. 

1 
2 
3 
4 
5 

6 

7 
8 
9 

AT, BE, DE, DK, LT, IT, NL, PT, SI and the UK 
CY, CZ, EE, ES, FI, IT, PL and the UK 
AT, BE, BU, DE, DK, FR, HU, IT, LV, LT, LU, NL, PT, SE, SI, SK, and the UK.  
AT, BE, DE, DK, LT, IT, PT, SE and SI. 
AT,  DE,  DK,  FI,  FR,  LT,  NL,  SE  and  SI.  However,  CY,  CZ,  EE,  ES,  IT  and  the  UK  are  planning 
recommendations/legislation in this field. 
AT, BE, DE, DK, EE, FR, IE, IT, LT, LU, NL, PT, SE, SI and the UK. However, AT, BE, DE and FR 
limit  termination  payments  to  a  maximum  number  of  total  annual  remuneration,  instead  of  fixed 
remuneration as recommended. 
BE, DK, IE, IT, LT, PT and the UK. 
BE, DE, DK, IE, LT, NL, SI, SK and the UK. 
AT, BE, DE, DK, IT, LT, NL, PT and SI endorsed a number of those recommendations. 

EN 

3 

   EN 

                                                 
3. 

ASSESSMENT OF THE APPLICATION OF THE RECOMMENDATION 

Endorsement  of  the  recommendations  is  assessed  by  area.  Member  States  which  have 
implemented (some of) the recommendations, have mostly included them in their Corporate 
Governance  Codes.  A  number  of  Member  States10  is  still  working  on  legislative  proposals 
and/or revision of its Corporate Governance Code to include (some of) the recommendations. 
Information provided by member States further suggests that some Member States did not see 
a need to introduce (all) recommendations in their legislation or Corporate Governance Code 
as there did not appear to be significant problems with remuneration in their Member State11.  

3.1. 

Structure of remuneration policy 

Most  Member  States  either  recommend  or  require  that  variable  remuneration  is  linked  to 
performance  criteria.  However,  not  all  national  recommendations  and/or  laws  stipulate 
explicitly that performance criteria should be predetermined and measurable12. Furthermore, a 
majority  of  Member  States  recommends  or  requires  the  promotion  of  the  long  term 
sustainability of the company through the choice of performance criteria, but only a minority 
of Member States recommends or requires the inclusion of non-financial performance criteria 
to determine variable remuneration.  

About  half  of  the  Member  States  recommend  or  require  companies  to  set  limits  on  the 
variable  part  of  remuneration.  However,  only  a  few  Member  States  explicitly  encourage 
companies to withhold variable remuneration in case of underperformance.  

A  minority  of  Member  States  recommend  or  require  deferment  of  a  major  part  of  variable 
remuneration, in the sense that a major part of variable remuneration is awarded on the basis 
of multiyear performance criteria or definitive award of a major part of variable remuneration 
is  postponed  for  a  number  of  years  upon  the  fulfilment  of  performance  criteria  after  time. 
Information  provided  by  Member  States  suggests  that  one  of  the  reasons  for  the  low 
endorsement rate is that not all Member States are familiar with the concept of deferment13, 
and may have understood it in a different way.  

A  minority  of  Member  States  has  endorsed  the  recommendation  with  regard  to  clawback 
arrangements, meaning contractual arrangements with directors which permit the company to 
reclaim variable remuneration which was paid on the basis of data that proved to be incorrect, 
or a provision in law which allows companies to do so. This issue is more often regulated in 
law  than  other  maters  covered  by  the  Recommendation.  A  number  of  Member  States  has 
published  legislative  proposals  to  amend  the  law  in  this  respect14.  Together  with  planned 
revisions  of  Corporate  Governance  Codes,  this  would  result  in  endorsement  of  the 
recommendation by a majority of Member States.  

10 
11 
12 
13 

14 

CY, CZ, EE, ES, FI, IT, PL and the UK  
Among others EE and SK 
Some Member States assert however that they have implicitly recommended this. 
Deferment  of  variable  remuneration  means  that  it  is  awarded  on  the  basis  of  multiyear  performance 
criteria or its definitive award is postponed for a number of years upon the fulfilment of performance 
criteria after time, and should at least apply to variable remuneration in cash. (Variable remuneration in 
equity is addressed by the recommendations with regard to share based remuneration.) 
Also,  some  Member  States  are  preparing  a  revision  of  their  Corporate  Governance  Code,  which  will 
recommend the possibility of clawback of variable remuneration. 

EN 

4 

   EN 

                                                 
With regard to termination payments, a minority of Member States recommends or requires 
that they are limited to 2 years of fixed remuneration. However, some Member States allow 
that termination payments are also based on (average) variable remuneration15. Other Member 
States are more stringent, as they recommend a limitation to one year of fixed remuneration16. 
Most Member  States, which recommend or require limitation of  termination payments, also 
recommend  or  require  that  they  should  not  be  paid  if  the  termination  is  due  to  inadequate 
performance17.  

3.2. 

Share-based remuneration 

Many Member States regard share based remuneration as a form of variable remuneration. As 
a  consequence,  award  of  shares  or  share  options  is  often  linked  to  performance  criteria. 
However, only a number of Member States recommend or require that shares should not vest 
for  at  least  three  years  after  their  award  and  share  options  should  not  be  exercisable  for  a 
similar period. Some Member States recommend or require a vesting period only for shares18. 
Others recommend or require a restriction only on the right to exercise share options19.  

The  Commission  also  recommended  that  vesting  of  shares  and  the  right  to  exercise  share 
options should be subject to predetermined and measurable performance criteria. This means 
that  after  shares  or  share  options  are  awarded  (whether  on  the  basis  of  performance  or  not) 
shares vest, or the right to exercise share options is awarded, only if performance criteria have 
been met. A minority of Member States have implemented this recommendation. Information 
provided  by  Member  States  suggests  that  some  have  understood  the  recommendation  in  a 
different  way,  in  the  sense  that  award  of  share  based  remuneration  should  be  subject  to 
performance  criteria  instead of vesting and the right to exercise after the initial award. This 
could be a reason for the low endorsement rate of this recommendation.  

3.3.  Disclosure of remuneration policy and shareholders´ vote 

Many Member States recommend or require minimum standards for disclosure. Mostly, this 
takes the form of a list of elements which should be included in the disclosed remuneration 
policy.  In  the  2004  Recommendation,  the  Commission  also  recommended  minimum 
standards for disclosure. Many Member States have taken those standards into account. In the 
2009 Recommendation, the Commission recommended additional elements which should be 
disclosed  in  the  remuneration  policy  and  also  recommended  more  generally  that  the 
remuneration policy should be clear and easily understandable. A minority of Member States 
recommends or requires explicitly that the disclosed remuneration policy should be clear and 
easily understandable. Some Member States have taken a different approach to reach this goal 
and  have  issued  a  standard  template  for  the  disclosure.  Also  a  minority  of  Member  States 
recommend or require the inclusion of all elements, recommended by the Commission in the 
2009 Recommendation, in the disclosed remuneration policy. Moreover, there is a tendency 
among  Member  States  to  introduce  new  recommendations  or  requirements  as  regards  the 
disclosure in the remuneration policy of elements relating to variable remuneration, including 

15 
16 
17 

18 
19 

AT, BE, DE and FR. 
IE, NL, SI and UK 
However,  DK  and  SE  do  not  recommend  this,  as  they  consider  it  incompatible  with  the  function  of 
termination payments as safety net in case of immediate termination of the contract.  
FR, LU and SE 
CY, DK, NL and PT 

EN 

5 

   EN 

                                                 
long term performance criteria and performance measurement, and conditions of share-based 
remuneration.  

In  a  minority  of  Member  States  there  is  a  recommendation  or  legislative  provision  which 
promotes shareholder voting on remuneration policy. These recommendations and provisions 
take  different  forms.  Some  recommend  or  require  of  companies  that  they  better  facilitate 
shareholder voting. Other Member States recommend (sometimes under ´comply or explain´ 
obligations)  to  shareholders  or  institutional  investors  that  they  make  considered  use  of  their 
rights. It should further be noted that the mere fact that shareholders have a right to vote on 
remuneration policy does, in the Commission´s view, not qualify as encouraging shareholder 
voting on remuneration policy.  

3.4.  Remuneration Committee 

With regard to expertise and integrity of the Remuneration Committee, a minority of Member 
States  recommends  or  requires  that  one  member  of  the  Remuneration  Committee  has 
expertise in the field of remuneration policy20. A few Member States recommend or require 
instead that every board member, supervisory or non-executive board member or member of 
the  Remuneration  Committee  has,  in  general,  sufficient  qualifications,  knowledge  and/or 
experience  with  regard  to  his  functions.  One  Member  State21  recommends  that  the 
Remuneration  Committee  has  access  to  the  necessary  skills  to  fulfil  its  role.  However,  this 
could also have the result that a Remuneration Committee seeks external advice. With regard 
to  external  consultants,  a  minority  of  Member  States  recommends  or  requires  that  the 
Remuneration  Committee  ensures  that  any  consultant  they  hire,  does  not  at  the  same  time 
advise  the  company.  Two  Member  States22  instead  recommend  or  require  disclosure  of  the 
other services that a consultant provides for the company. One Member State23 recommends 
that the Remuneration Committee, when hiring a consultant, ensures that there is no conflict 
of interest regarding other assignments that the consultant may have. Concerning independent 
judgment  of  members  of  the  Remuneration  Committee,  only  a  few  Member  States  have 
explicitly  recommended  or  required  that,  in  exercising  its  functions,  the  Remuneration 
Committee exercises independent judgment and integrity. It seems that most Member States 
are  of  the  opinion  that  this  follows  automatically  from  the  recommendation  or  requirement 
that  the  majority  (or  totality)  of  the  members  of  the  Remuneration  Committee  are 
independent.  The  Commissions´  recommendation  however,  was  intended  to  strengthen  the 
independent thinking of the members of the Remuneration Committee, once they have been 
selected in accordance with applicable criteria (such as independence criteria). 

With  regard  to  the  role  of  the  Remuneration  Committee,  only  a  few  Member  States 
recommend  or  require  that  it  periodically  reviews  the  remuneration  policy  for  executive 
directors, whereas one Member State24 gives this task to the supervisory board. A number of 
Member  States  seem  to  be  of  the  opinion  that  this  task  is  already  included  in  the 
Remuneration Committee´ s task to propose a remuneration policy. Where the national legal 

20 
21 
22 

23 
24 

Some Member States have indicated that they found ´expertise´ difficult to define. 
LU 
IE  and  UK.  The  UK  has  indicated  that  introducing  legally  binding  provisions  to  prevent  conflicts  of 
interest  of  remuneration  consultants  would  be  inconsistent  with  requirements  for  other  service 
providers. 
SE 
EE 

EN 

6 

   EN 

                                                 
that 

the  Remuneration  Committee  prepares  a 
framework  recommends  or  requires 
remuneration  policy  annually,  it  seems  natural  that  the  committee  uses  the  opportunity  to 
review the previous remuneration policy before proposing (a possibly identical) remuneration 
policy  for  the  coming  year.  However,  the  Commission´s  recommendation  was  intended  to 
strengthen  the  existing  functioning  of  the  Remuneration  Committee  by  encouraging  active 
monitoring and review of the remuneration policy, with a view to proposing changes, both in 
a system where the remuneration policy should be proposed annually, and there where that is 
not the case.  

A  minority  of  Member  States  recommends  or  requires  that  the  Remuneration  Committee 
ensures  proportionality  in  remuneration  between  individual  executive  directors  and  between 
executives and other employees of the company. Some Member States however recommend 
or require proportionality in remuneration between companies within the group, which is not 
exactly  the  same.  A  few  Member  States  recommend  or  require  that  the  Remuneration 
Committee  reports  and  is  present  at  the  Annual  General  Meeting.  Some  Member  States 
however require the presence of one or more members of the Remuneration Committee. 

4. 

Developments with regard to the application of the 2004/2005 Recommendations 

Since  the  2007  Commission  Staff  Report  on  the  application  of  the  2004  Recommendation, 
about half of the Member States25 has taken legislative initiatives26 with regard to directors´ 
remuneration.  Some  of  these  initiatives  addressed  only  one  specific  aspect  of  it,  such  as 
termination payments, but most initiatives were related to disclosure of remuneration policy, 
individual  remuneration  and/or  the  shareholders´  vote  on  directors´  remuneration.  Most  of 
these  Member  States  already  had  provisions  on  these  issues  in  their  Corporate  Governance 
Codes and chose to strengthen the provisions by making them binding, while some Member 
States introduced these provisions in their legal framework through new laws. Some Member 
States are still engaged in the legislative process27. Apart from legislative initiatives, a number 
of Member States who did not have recommendations on disclosure of remuneration policy, 
individual  remuneration  of  directors  and/or  the  shareholders´  vote  in  its  Corporate 
Governance Code in 2007, when the Commission Staff issued its report on the application of 
the  2004  Recommendation,  has  by  now  introduced  such  recommendations.  However,  there 
are  still  a  few  Member  States  who  do  not  recommend  or  require  this.  It  should  further  be 
noted that with regard to disclosure of the remuneration policy or report, there are differences 
among the Member States as regards its recommended or required content. Furthermore, the 
effect that is given to an advisory shareholder vote may differ among Member States.  

With  regard  to  the  2005  Recommendation  on  independent  directors,  which  includes 
recommendations  on  the  creation  and  role  of  the  Remuneration  Committee,  there  are  a  few 
Member States who do not recommend or require the installation of such committee and there 
are  differences  in  the  recommended  or  required  tasks  and  functioning  of  the  Remuneration 
Committee among the Member States where such committee is recommended or required.  

25 
26 
27 

AT, BE, CZ, DE, DK, EE, ES, FR, HU, IE, IT, LV, PT, SI, SK  
Or other binding measures, such as listing rules. 
CZ, EE, ES and IT 

EN 

7 

   EN 

                                                 
5. 

CONCLUSION 

The 2009 Recommendation has been taken into account by a number of member States. Ten 
Member  States  have  endorsed  at  least  half  of  the  recommendations28.  However,  most 
recommendations  have  been  implemented  by  a  minority  of  the  Member  States.  At  the 
moment, a number of Member States29 is still working on the implementation of (some of) the 
recommendations in its law or Corporate Governance Code. With regard to the content, the 
recommendations  on  variable  remuneration  have  been  in  general  been  implemented  to  a 
greater extent than the recommendations on the Remuneration Committee.  

However,  endorsement  of  the  disclosure  and  shareholder  vote  provisions  of  the  2004 
Recommendation  has  increased  significantly  in  recent  years.  There  is  also  a  trend  among 
Member  States  to  regulate  these  issues  in  a  binding  way.  Nonetheless,  there  are  still 
significant  differences  among  Member  States  as  regards  disclosure  of  a  remuneration 
statement or remuneration policy, the content of the remuneration statement and the level of 
detail and disclosure of individual remuneration. With regard to the shareholders´ vote, there 
are differences with regard to the object of the vote and whether the vote is binding or not, 
while  it  appears  that  there  are  differences  with  regard  to  the  follow-up  which  is  given  to  a 
negative advisory vote. 

In consequence, the Commission intends to consider whether further measures are needed to 
improve  the  coherence  and  effectiveness  of  EU  action  in  this  area.  To  this  end,  a  series  of 
questions have been included in the Commission´s Green Paper on Corporate Governance in 
Financial Institutions.  

28 
29 

AT, BE, DE, DK, IT, LT, NL, PT, SI and the UK 
CY, CZ, EE, ES, FI, IT, PL and the UK  

EN 

8 

   EN