CORPORATE GOVERNANCE

Shareholders to fix salaries for board members at listed firms

Panel of experts will recommend AGMs approve remuneration policies

In a country with close to six million people out of work, and which is undergoing what is known as an internal devaluation, largely thanks to lower wages, the lucrative salaries that many executives enjoy are a source of controversy.

Aware of the problem, recent governments have obliged listed companies to be more transparent with regard to their remuneration policies for their boards of directors. The objective now is to further increase the real power of shareholders when it comes to setting salaries by empowering them to approve those packages at annual meetings (AGMs) and limit maximum fixed annual salaries.

The issue of remunerations will be the star proposal of a battery of measures that a panel of experts in corporate governance will send to the government this week. The administration has committed itself to approving reforms and changes to regulations that are regarded as necessary.

The panel of experts is composed of members of the National Securities Commission (CNMV), the Economy and Justice ministries and the private sector, and is chaired by the head of the CNMV, Elvira Rodríguez.

The Sustainable Economy Law, which was approved during the former Socialist government of José Luis Rodríguez Zapatero, introduced some changes into the Securities Law obliging companies to be more transparent in the area of remunerations. Along with their annual corporate governance report, companies are now obliged to draw up a report detailing the retributions directors received in the year in question and to identify the remunerations policies they plan to put in place during the current year. This document has to be submitted to a vote by shareholders at annual general meetings.

The current conservative Popular Party government approved a ministerial order in March of this year setting the minimum information that the report on remunerations policy must contain, and requires that this information be homogeneous for all listed companies.

Sources close to the panel have said that the legislative changes it will put forward will make Spain one of the most demanding countries in terms of corporate governance. One of the proposals is that AGMs approve the combined remunerations of boards of directors — including information on fixed salaries, bonuses and pension plans — at least every three years.

The retributions report will be voted on annually and in the case of it being rejected by shareholders, the company will have to reformulate it and present it once again to shareholders for approval.

The average remuneration of the board of companies included in the blue-chip Ibex 35 last year was 7.9 million euros, while the average per director was 562,000 euros. Executive directors received 61.4 percent of total remunerations at an average of 2.2 million euros a year. The total number of top-ranking managers in Ibex 35 companies was 467 last year, with each receiving an average of 776,000 euros.

The crisis in some countries, particularly Anglo Saxon ones, has sparked what has come to be known as a “shareholders’ spring” against board remunerations. In Britain, for example, the shareholders of Aviva, Centamin, Pendragon, WPP and Cairn Energy rejected the remunerations report submitted by management, and directors of Aviva, Astrazeneca and Trinity Mirror were forced to stand down after coming in for heavy criticism. In the United States, a majority of shareholders of Xstrata and Citigroup voted against the retributions their boards of directors had granted themselves.