On 7 May 2015, the Legal Affairs Committee (JURI) of the European Parliament voted to overhaul corporate governance rules covering compensation package and voting practices by large shareholders. The proposal, first introduced in April of last year, was designed to promote long-term investing but the committee’s split vote foreshadows resistance from MEPs from some countries delegations.
The European Union wants to give shareholders a louder voice on how much corporate directors earn. Italy, Spain, Sweden and Belgium already give shareholders a binding “say on pay.”
The draft law, approved by JURI, is empowering shareholders to vote on directors’ remuneration, so as to ensure proper transparency and tie their pay more closely to their performance. Consequently, shareholders in some 10,000 companies across Europe would have the right to reject the pay packages for directors at least once every three years.
The most controversial measure included in the proposal would make multinational companies to publicly report their pre- and after-tax profits in every country and would be required to disclose information on tax rulings, taxes paid and public subsidies received. Banks and mining companies are already required by European legislation to publish a breakdown of their earnings per country.
However, last year EU governments rejected extending the practice to other business sectors. Nevertheless, Pierre Moscovici, the European Commissioner for economic and financial affairs and taxation, has already said he supports the move.
To promote long-term shareholding, MEPs inserted provisions that would require member states to introduce specific mechanisms to reward long-term shareholders: additional voting rights, tax incentives, loyalty dividends or loyalty shares.
For more information, please visit the website of the European Parliament and read the article in Politico.