On 14 March, the European Parliament voted to adopt the final text of amendments to the Shareholder’s Rights Directive. The text, based on the political agreement reached in December, will now need to be formally adopted by the Council of the EU before publication in the Official Journal of the EU.
The new Directive will introduce several measures to increase the oversight powers of shareholders’ in listed companies in particular regarding executive pay. This includes the right to take part in a binding vote on the company’s remuneration policy for the directors. The remuneration policy will have to provide an explanation of how remuneration paid to directors contributes to business strategy, long-term interests and sustainability of the company and set out the different components of fixed and variable remuneration offered to directors. In assessing the level of remuneration, the performance of directors will have to be measured against both financial and non-financial performance criteria, including environmental, social and governance factors where relevant. The new Directive also includes requirements on the public discourse of the policy. These amendments are intended to link remuneration to long term performance and end ‘excessive pay’, but will rely on shareholders choosing to exercise the new rights afforded to them.
The amended Directive will also introduce new rules for institutional investors and asset managers. The new rules aim to increase transparency, requiring asset managers, institutional investors and proxy advisors to develop and publish a policy on shareholder engagement or explain why they have chosen not to do so. The policy will have to explain how integration sits within their broader investment strategy and set out policies to manage actual and potential conflicts of interest particularly where the investor or its affiliates have a close business relationship with the company they have invested in. In addition, the proposed amendments will also introduce new measures to ensure companies are able to clearly identify their shareholders and to require intermediaries to facilitate the exercise of the rights by a shareholder.
With the formal adoption of the rules not yet completed, it is unlikely that the rules will apply before May 2019 as Member States will have two years to transpose the new rules once they are published in the Official Journal.