Draft law could herald the end of hefty salaries like Mueller's
Aer Lingus chief executive Christoph Mueller took an embarrassing blow at the airline's AGM yesterday, when the Government – which owns a 25.1pc stake in the carrier – voted against his hefty €1.5m salary and benefits package.
But as embarrassing as this was, An Post chairman Mr Mueller had little to worry about. In Ireland, the salaries paid to directors at listed companies must be submitted to a shareholder vote – but this does not actually affect the director's right to that remuneration.
The vote held by Aer Lingus shareholders on Mr Mueller's pay was non-binding, meaning he was free to take that €1.5m home regardless of whether it was approved or defeated by the company's owners.
This could, however, be about to change. The European Commission is fighting hard to ensure shareholders' right to a 'say on pay' is enshrined at the highest level. The commission introduced a raft of new measures last month aimed at reforming corporate governance at Europe's listed companies – including a rule that gives shareholders a binding vote on directors' pay packets.
The draft law is aimed at making firms more answerable to their owners and addressing public anger over big pay rises for bosses. In France, for example – where like Ireland, shareholders don't legally have a say on executive pay – remuneration of directors at French-listed companies rose by 94pc between 2006 and 2012. Average share prices, in comparison, fell by a third. After Sweden adopted a binding shareholder say on pay, share prices and executive pay have moved largely in lockstep.
"I cannot explain this enormous gap between the level of pay and corporate governance, and it does leave you with a pretty bitter taste in your mouth when you see the excessive levels of pay in some cases," said EU financial services chief Michel Barnier when announcing the measures.
Under the proposals, the EU's 10,000 listed companies would have to publish clear and comparable information on their remuneration policy for executives and seek shareholder backing for it every three years.
The policy on pay must explain how it contributes to the long-term interests of the company and state a maximum amount of pay for executives. It should also say why the ratio or difference in pay between directors and full-time staff is appropriate, though it does not set a fixed ratio.
Other changes include making it easier for a firm to find out who its shareholders are.
The measures still need approval from EU states and the European Parliament to come into force.