View more on these topics

EC calls for two-year limit on directors’ severance pay

The European Commission is recommending that the remuneration of directors and employees in the financial services sector should promote sound and effective risk management.

The European Commission says remuneration policies for directors of listed companies should ensure pay for performance ensure the medium and long term sustainability of companies.

The EC says firms should set a two-year limit on directors’ severance pay and ban severance pay in the case of failure.

The recommendations also say share options should not make up part of non-executive directors’ remuneration to avoid conflicts of interest.

The EC also focuses recommendations on all risk-taking staff and is calling for the adoption of new measures relating to structure of pay, governance, disclosure and supervision.

It says financial institutions should strike a balance between the level of core pay and bonuses and the bulk of staff bonuses should be deferred in order to take into account risks linked to underlying performance.

It adds that financial institutions should also be able to claim back already paid bonuses where data has been proven to be manifestly misstated.

The EC says firms’ remuneration policies should be disclosed to stakeholders and supervisors should ensure that financial institutions apply the principles on sound remuneration policies to the largest possible extent.

Internal market and services commissioner Charlie McCreevy says incentive systems for executive directors in listed companies have led to “excessively short-term management actions” and “pay for failure”.

He says: “The existing EU rules need to be supplemented by additional guidance on certain key aspects of the structure of directors’ remuneration. Our message is very clear: directors’ remuneration must be clearly linked to performance and should not reward failure.”


The meaning of advice

It is time to scrap retail financial services regulation altogether and instead spend the billions saved on educating consumers as to the facts of financial life. Retail regulation has failed by every measure thanks to a flaw in its first design.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm