Executive Remuneration in the EU: Comparative Law and Practice

72 Pages Posted: 4 Mar 2004

See all articles by Guido Ferrarini

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance; European Corporate Governance Institute (ECGI)

Niamh Moloney

London School of Economics - Law Department; European Corporate Governance Institute (ECGI)

Cristina Vespro

ECARES, Université Libre de Bruxelles; European Corporate Governance Institute (ECGI)

Date Written: June 2003

Abstract

Executive pay practices are currently a "cause celebre" of corporate governance in the media, among regulators, in the marketplace, and in academia, in the US, the UK, and Europe. The purpose of this paper is to examine the approaches taken across Europe to the regulation of executive pay practices in listed companies. The outstanding feature of the regulation of executive pay across Europe is the extent to which it reflects the interconnection between pay and corporate governance. This link is expanded on in Part B with respect to the different rules found across European legal systems and how they address/prioritize the concerns which executive pay potentially raises. The role of public regulation is relatively important for disclosure of executive pay, while best practices and private codes generally have some impact on the way in which executive compensation is set for listed companies. On the whole, there is some convergence in continental Europe towards the Anglo-American model. The merits of full disclosure of executive remuneration are increasingly acknowledged in corporate governance codes and reports, while the use of remuneration committees is on the rise in the Continent. The research data on reported pay practices for 2001 among FTSE Eurotop300 companies reveal a reliance on performance-based pay generally and a somewhat variable adoption of share options programmes and other equity-based incentive contracts, which are generating difficulties in dispersed ownership systems. The executive pay problem may therefore be a particular cost of dispersed ownership, and the particular legal and policy responses, which are widely debated a specific feature of Anglo-American corporate governance. Nonetheless, the faultline between both systems, which is evident from the different approaches European states have taken, calls for particular care in the adoption of pan-European reforms but also in the transplanting of reforms based on the Anglo-American experience.

Keywords: Executive pay, Corporate governance, Ownership structure, Company disclosure, Remuneration Committee

JEL Classification: G3, G38, J33, K22

Suggested Citation

Ferrarini, Guido and Moloney, Niamh and Vespro, Cristina, Executive Remuneration in the EU: Comparative Law and Practice (June 2003). ECGI - Law Working Paper No. 09/2003. Available at SSRN: https://ssrn.com/abstract=419120 or http://dx.doi.org/10.2139/ssrn.419120

Guido Ferrarini (Contact Author)

University of Genoa - Law Department and Centre for Law and Finance ( email )

Via Balbi, 22
16126 Genova, 16100
Italy
+39 010 209 9894 (Phone)
+39 010 209 9890 (Fax)

HOME PAGE: http://www.clfge.org

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Niamh Moloney

London School of Economics - Law Department ( email )

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Cristina Vespro

ECARES, Université Libre de Bruxelles ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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