On 10 June 2019, an act implementing the amendments in the Shareholder Rights Directive came into force. One of the most important amendments is that listed companies must prepare and publish a remuneration policy and a remuneration report for executive members in the future. Both the policy and the report are known from the recommendations on good corporate governance, but are now governed in sections 139 and 139a of the Companies Act.

The purpose of the remuneration policy is to create transparency as regards executive members’ remuneration and to give the shareholders a wider basis for decision to exercise active ownership. The remuneration report is to ensure that the company observes the incentive policy by providing an overview of the remuneration paid to the executive members. Both the policy and the report must be published on the company's website.

Remuneration policy covering the total remuneration

Under the new Act, the remuneration policy must contain a description of the different components of fixed and variable remuneration. The policy must therefore reflect the management’s total remuneration. Consequently, the company may only pay executive members based on this policy.

The requirement for stating the total remuneration is in contrast to section 139 then in force, which only concerned incentive pay and therefore not fixed remuneration.

The directive does not regulate the executive board’s remuneration level, but it does lay down a number of new guidelines on which the remuneration must be based. According to these guidelines, the remuneration policy must be prepared in accordance with the company’s business strategy, long-term interests and sustainability. The board may therefore not fix the remuneration based only on what is reasonable.

In addition, the remuneration policy must describe the guidelines regulating the term of the executive members’ agreements, including termination, notice of termination and severance pay. The police must also describe the most important elements of supplementary pension schemes or other schemes.

The policy must explain how the company's employees’ salary and employment terms were taken into consideration when preparing the remuneration policy. The purpose is to ensure a connection between the management’s remuneration and the employees’ salary. In this respect, it is also relevant to refer to the collective agreement covering the company.

Adoption at the general meeting

The remuneration policy must be adopted by a simple majority at the company’s general meeting. All material changes of an existing policy must be put to a vote at the general meeting and minimum each fourth year.

If the general meeting does not adopt the remuneration policy, the board must present an amended proposal no later than at the next annual general meeting. The remuneration to the executive members will continue in this period according to the previously adopted policy or, in the absence thereof, according to the company’s previous practice.

Compliance with the new rules

The purpose of the act is therefore to ensure that listed companies adopt a remuneration policy and a remuneration report, which has only been a recommendation until now. However, the provisions do introduce new issues not known from the recommendations for good corporate governance, and it is therefore important for listed companies to ensure that they comply with these new provisions.

It is only in connection with new agreements and extension and amendment of existing agreements with executive members that the adopted remuneration policy must be complied with. An agreement concluded prior to the adoption of the remuneration policy cannot be unilaterally amended by the company without notice with reference to the new rules. This applies irrespective of whether the agreement observes the framework of the remuneration policy.

Publication of executive members’ remuneration is publication of personal data. But the publication is not contrary to the data protection rules as it is a statutory obligation. But companies must remember to observe the duty of disclosure in relation to the executive members.


Frans Rossen

Partner (L)