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The vote on the remuneration policy for executives in Belgium: what you should know

Executive Compensation

May 28, 2019

New regulations will make the vote on the remuneration policy compulsory

When the revised Shareholders’ Rights Directive (SRD II) was adopted in June 2017, it became clear that Belgian AGMs would see the introduction of votes on the remuneration policy in one way or another. The SRD II holds that “Member States shall ensure that the vote by the shareholders at the general meeting on the remuneration policy is binding […] However, Member States may provide for the vote at the general meeting on the remuneration policy to be advisory”.As on other topics, the European directive gives Member States the flexibility to adapt to their local context.

Not unexpectedly, Belgium has adopted the least extreme of the two options. Indeed, the 2020 Belgian Code on Corporate Governance presented on May 9th at the Federation of Entreprises in Belgium (FEB) by the Corporate Governance Commission provides for a non-binding / advisory vote. Light as it may sound, listed companies should not expect a simple “business as usual” case and should prepare for substantial changes.

Advisory vote on remuneration policy: why it matters

An advice that you cannot refuse

At first glance, the decision of the Corporate Governance Commission to opt for an advisory instead of a binding vote might seem like a quiet path, with limited impact on Belgian listed companies. However, having a negative advisory vote can be almost as difficult to handle as a plain rejection of the remuneration policy,  bringing reputational damage and distrust in the corporate governance of the company amongst investors. A negative vote, whether advisory or binding, is an imperious call for action; the only difference is that in an advisory vote environment companies might use their rejected policy for a year, instead of using the previous policy. In any case, a new policy has to be worked on and submitted to a vote the following year.

The changes ahead

The disclosure of the remuneration policy is not new in Belgium as the 06/04/2010 law already holds in the article 3, §3, that the remuneration report should contain “a statement on the remuneration policy”. As such, the remuneration policy was already part and parcel of the discussions at AGMs on the remuneration report and it was certainly high on the agenda for the vote.

Submitting the remuneration policy to a separate vote is nonetheless a significant change, resulting in an increased scrutiny and a more structured, comprehensive approach to investors’ say-on-pay in Belgium, as they will have to provide an opinion on remuneration twice instead of once. The articulation of the two votes should be looked at in the following way:

  • On the remuneration policy: looking forward, can shareholders trust that the proposed policy will ensure that the Executives maximize the value creation for the company in a sustainable manner?
  • On the remuneration report: looking backward on the previous year, how has the existing remuneration policy been implemented? What reward have Executives received? Has it been in line with the performance of the company? Has money been well spent?

Companies should seize that unique opportunity to realign, review and communicate on their remuneration policy

Useful tips from experience

Based on Willis Towers Watson’s experience as a trusted Executive Compensation advisor in countries where votes on the remuneration policy are already implemented, here are a few simple and useful tips to ensure companies are fully equipped for the changes ahead:

  • Companies should take the time to assess once again their remuneration policy: is it still aligned with the business strategy? Does it ensure line-of-sight from the Executives perspective? Do they need to reconsider variable pay design and KPIs in particular?
  • Competitiveness and positioning vis-à-vis the external market should be thoroughly reviewed;
  • Companies should engage with all relevant stakeholders and ensure they are aware of their expectations;
  • Communication is key: companies need to clearly define the story their remuneration policy is telling within the broader picture of the business and HR strategy.
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