Formal remuneration policy
Most listed companies already have remuneration policies in place that were approved by the shareholder's meeting. Yet, in the framework of SRD II, listed companies should revisit their remuneration policy and assess these in light of the new requirements.
Until now, listed companies only had to provide the following information with regard to such remuneration policies in their remuneration report:
- a description of the procedure applied during the reported financial year to develop a remuneration policy;
- a statement on the remuneration policy applied during the reported financial year; and
- all significant changes to the remuneration policy as compared to the reported financial year.
Following the implementation of the SRD II, the importance of the remuneration policy increases significantly. As of 2021, listed companies have to adopt a formal remuneration policy which complies with certain "hard law" content criteria. The remuneration policy now becomes a separate instrument which is subject to its own set of rules, separate from the rules applicable to the remuneration report. Most importantly, the formal remuneration policy needs to be approved by the shareholders' meeting (see below). In this way, the SRD II and the Law of 28 April 2020 increase the impact that shareholders can have on the remuneration within the company ("say on pay").
Scope of application
The remuneration policy applies to (i) directors (including members of the supervisory board and management board in case of a two-tier structure), (ii) other executives (i.e., members of a committee in which the general management of the company is discussed) and (iii) persons entrusted with the daily management of a listed company.
The formal remuneration policy has to describe how it contributes to the corporate strategy, long-term interests and sustainability of the company. It will have to contain the following elements:
- The components of fixed and variable remuneration (including bonuses and other benefits) which may be granted by the company, and their relevant proportions;
- Guidance on how the company has taken into account the remuneration and employment conditions of the employees of the company when establishing the remuneration policy;
- In case the company grants variable remuneration, an overview of the clear, understandable and different criteria used to grant such variable remuneration and the application thereof, more specifically:
- Information on the financial and non-financial criteria, including criteria with regard to corporate social responsibility (if any);
- Guidance on the way in which these criteria contribute to the corporate strategy, long-term interests and sustainability of the company;
- The methods used to determine the extent to which the criteria have been fulfilled;
- Information on the potential deferral of payments of variable remuneration and potential claw-back;
- If the company grants share-based remuneration, an overview of the vesting periods and (if applicable) retention obligations and guidance on how such remuneration contributes to the corporate strategy, long-term interests and sustainability of the company;
- A description of the duration of the contracts or arrangements with the directors, other executives and persons entrusted with the daily management, the applicable notice periods, the key features of additional pension contribution arrangements and early retirement schemes and the conditions with regard to terminating contracts and any payments in respect to such termination;
- A description of the decision process with regard to the determination, review and implementation of the remuneration policy and the measures taken to prevent or manage conflicts of interest and, where applicable, the role of the remuneration committee or any other competent committees within the company;
- If the remuneration policy was reviewed, a description of all significant changes must be included in the remuneration policy as well as guidance on how the voting results and opinions of the shareholders with regard to the remuneration policy and the remuneration report have been taken into account since the most recent vote on this topic.
Except for the first element in this list, these requirements are new and much more detailed than under the previous regime, thereby providing a more granular view of the remuneration policy of listed companies.
Other requirements deriving from the 2020 Belgian Code on Corporate Governance and the EU Sustainable Finance Disclosure Regulation
The 2020 Belgian Code on Corporate Governance requires additional information on executives and non-executive board members.
Further to the entry into force on 10 March 2021 of the EU Sustainable Finance Disclosure Regulation (SFDR), financial advisers and financial market participants (banks, investment firms, pension providers, insurance undertakings and asset managers) have also to provide additional disclosures regarding environmental, social and governance criteria (ESG) in their remuneration policy.
Binding vote by shareholders' meeting
In addition to these new requirements, the key change of the Law of 28 April 2020 is that the revised remuneration policy must be approved by the shareholders' meeting. At every material change and at least every four years, the remuneration policy has to be approved by the shareholders' meeting.
If the first formal remuneration policy is not approved by the shareholders' meeting, the listed company may continue to remunerate the directors, other executives and persons entrusted with the daily management in accordance with the existing practices or the previously approved remuneration policy. A revised formal remuneration policy must be provided to the next shareholders' meeting.
After the approval of the revised remuneration policy by the shareholders' meeting, the remuneration policy itself and the date and voting result must be made public immediately on the website of the company. This information must remain publicly available on the website (free of charge) at least during the period in which the remuneration policy is applicable.
This obligation is part of an increasing trend to provide transparent information to the public and to make use of digital tools. Note that the 2020 Belgian Code on Corporate Governance states that “Disclosure is essential for governance and crucial for effective external oversight. The Code strives for more transparency through publicity.".
Entry into force
The revised remuneration policy must be provided for approval to the general shareholders' meeting deciding upon the approval of the annual accounts to be published in 2021. Hence, if not done so already, listed companies should take this new legislation into account when currently preparing their upcoming annual shareholders' meetings.