Directors compensation

Transcription

1 Pedro Rebelo de Sousa / Paulo Bandeira 12 April UIA Paris

2 A changing world The Agency problem The clash between fiduciary duties of directors and their obligation to their own welfare. Are directors free from interest when determining their own remuneration? How can one trust that the company interest is being taken care of?

3 A changing world Difficulties and errors performed in the last few decades: high emphasis on the short term performance one single performance metric for both the short term and long term excessive reliance on stock options variable compensation plans without ceiling failure to define, reflect on and adapt to sustainability performance

4 Worldwide pressures Heightened scrutiny Pay for performance Pay levels Clawbacks Transparency A changing world

5 Key factors A changing world Balance Risk Management Governance Balance of the structure of executive compensation between fixed and variable Revisit the relationship between risk and compensation, specially the metrics for sustainable performance Improve communication to engage shareholders in the decision making

6 Proposed answers: A changing world Say on pay shareholders intervention Increased focus on Risk Assessment and its relation with compensation it should not induce excessive risk-taking Clawback (claiming back earned amounts) and malus (reducing variable remuneration deferred in case of bad performance) policies

7 US Regulation - Dodd-Frank Act Shareholder non-binding vote on directors compensation, at least, every three years Shareholder non-binding vote on directors golden parachute Compensation committee members to be independent from board of directors members Disclosure of pay versus performance Clawback provisions for 3 year period in case of accounting restatement Disclosure on directors hedging (on equity securities)

8 EU Regulation (Recommendation 2004/913/EC Rec. 2009/385/EC) approval of the remuneration policy by the shareholders (with binding or non-binding effect) variable remuneration should be deferred for a period between 3 and 5 years clawback provisions in case of misstatement in accounts termination payments should not exceed 2 years termination payments should not be due in case of inadequate performance and should not reward failure

9 EU Regulation (Recommendation 2004/913/EC Rec. 2009/385/EC) share-based remuneration schemes should be addressed by the shareholders meeting shares should not vest for at least three years after award shareholders individual remuneration should be disclosed at least one member of the remuneration committee should have knowledge and experience in remuneration policies

10 EU Regulation (Recommendation 2009/384/EC for financial institutions) generally, the above referred plus it should be disclosed information on the 1. decision-making process 2. linkage between pay and performance 3. criteria used for performance measurement and the risk adjustment 4. parameters for any annual bonus scheme

11 Financial Stability Board (G ) Negative performance should lead to reduction in payouts through malus and clawbacks 40% to 60% of the variable remuneration should be deferred for not less than three years More than 50% of variable compensation should be awarded in shares, subject to a share retention policy Guaranteed bonuses are not consistent with sound risk management and pay-for-performance principle After an exceptional government intervention to save a bank, supervisors should be able to restructure compensation

12 Say on pay Non-binding vote: UK (2003); Australia (2005); Germany (2009); US (2010); Spain; Binding vote: Netherlands (2004); Sweden (2006); Norway (2007); Denmark (2007); Say on when Australia, Norway, Sweden, UK, Portugal annual vote US at least once every three years

13 Portugal, a good example? The law determines that: Remuneration is determined by the shareholders meeting or by a remuneration committee appointed by shareholders (1986) Remuneration is individually disclosed in the management or governance report Termination indemnifications cannot exceed the remunerations amount until end of the mandate Dismissal for just cause cannot be indemnified Directors remuneration of banks intervened by the State cannot be higher than 50% of the average remuneration of the two previous years

14 Thank you. LISBOA R. Dom Francisco Manuel de Melo, nº21, T F FUNCHAL Av. Zarco, nº2, 2º, T F PORTO (*) R. Tenente Valadim, nº215, T F Em parceria com_ Simmons & Simmons Veirano Advogados_BRASIL (*) Andreia Lima Carneiro & Associados LCF Leg Couns. Firm_ANGOLA SAL & Caldeira_MOÇAMBIQUE Amado & Medina_CABO VERDE