EU hots up campaign against fat cat pay

Amsterdam, 14 July 2003

The excessive pay of many top executives across Europe is an abuse of shareholder trust which is hampering a recovery of the continent's stock markets, the European Commissioner for the Internal Market told the international corporate governance conference here.

Signalling that the “menace" of overpaid boardrooms was now high on the EU agenda, Frits Bolkestein said: “The remuneration of top dogs and fat cats if out of proportion and excessive. It's up to corporate Europe to shape up. The faster it does, the faster confidence will return".

Mr Bolkestein said that the key components of the EU's action plan - published recently on this website (www.iccwbo.org/CorpGov/stories/June_10_2003-27.asp) must be “adopted in the short term". One of these would be to enforce the right of shareholders to approve board pay packages before they are put in place.

Shareholders, he said, should have the right to approve or reject compensation proposals for top management, including inflated severance packages.

The commissioner said it was flawed logic for boards to justify inflated pay packages by saying they had to take into account the risk that top managers run when accepting a CEO role. “Then why do they get golden handshakes if something goes wrong", he asked.

Indications are that the Commission may push hard for its pay proposals to be legislated across the EU, including a proposal to restrict severance pay to 12 months, already embodied in the Dutch code.

Mr Bolkestein said he was wary of hobbling companies with too much legislation but remained ¢â‚¬Ëœcommitted" to pushing through proposals to tighten corporate governance and offering investors protection from fraud and malpractice, and the ¢â‚¬Ëœhall of shame' created by recent scandals.

Saying he would argue his proposals to the European Parliament in September he declared: “We can't have a situation where directors are monitored by themselves".

His speech, pugnacious in parts, was well received by the international fund managers and corporate governance experts at the conference.