The new rules on remuneration of chief executives in the financial services sector introduce a maximum variable salary, requirements for a pay policy and the setting up of a remuneration committee. Companies covered by the Financial Business Act should carefully review current pay policies and identify any employees who may be covered by the new rules.

The content of the new rules on remuneration

The new rules are fairly complicated containing a number of percentage rates not to be exceeded. The main points of the new rules are described in below, but each company must make a close review of the composition of the remuneration of the persons and employees covered by the new rules.

Preparation of a pay policy

The financial companies must prepare pay policies to ensure effective risk management and that the company's business strategy and values are included in the fixing of the remuneration. The pay policy should also ensure that the variable salary which the company undertakes to pay does not undermine the company's possibilities of strengthening its capital base.

The board of directors must determine the company's pay policy ensuring implementation and compliance. The pay policy is to be adopted by the company's supreme body (the general meeting) ensuring the shareholders' influence on e.g. severance pay and the variable salary etc.

Setting up of a remuneration committee

In the future, some financial companies are obligated to set up a remuneration committee drafting a pay policy and taking decisions that may influence the company's risk management.

The detailed requirements for a pay policy are stipulated in an executive order.

Limitations of the use of variable salary

The new rules result in a limitation of the size of the variable salary elements to be granted to members of a board, the management and employees with significant influence on the company's risk profile.

Variable salary elements mean arrangements where the final salary is unknown on beforehand, but where this salary is e.g. dependent on the results achieved.

The limitation of the use of variable salary elements is stipulated in detail in the Act.

A stricter duty of notification and reporting

The companies are subject to a stricter duty of notification and reporting and must at least once a year publish information concerning their pay policies, including

  • The connection between the salary and the results;
  • The most important characteristics of the company's pay structure;
  • The criteria upon which the granting of shares, options and other variable salary elements is based;
  • The total salary amounts distributed on the board, the management and other "important risk takers.

Companies having no securities admitted for listing on a regulated market in Denmark and a balance of less than DKK 500 million in two consecutive financial years may omit to publish the above information.

The detailed requirements are stipulated in an executive order.

The reason for the new rules

The reason is, inter alia, to limit "an exaggerated risk-taking conduct" by limiting the size of the salary elements that are variable based on the result achieved by the company. At the same time, there has to be more openness concerning the pay determination of the management of financial companies.The new rules incorporate the EU Commission's recommendation on remuneration in the financial services sector, the new amendment to the EU Directive on capital requirements and the Danish Government's agreement concerning financial companies' responsible pay policies.

The rules were implemented in the Financial Business Act as at 1 January 2011 covering financial institutions, mortgage credit institutions, investment companies, trust companies, insurance companies and financial holding companies.

The new rules apply to members of the board, the management and employees having significant influence on the company's risk profile. The last group is to be determined based on the specific circumstances of each company.

The actual handling of the new rules

Based on the new rules, companies covered by the Financial Business Act should make a thorough review of the present pay policy also identifying the employees who might be covered by the new rules.

At the same time, the new rules are to be implemented with the result that they are reflected in the company's course of business – it is thus often necessary either to amend or introduce new courses of business.


Claus Bennetsen