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Vijf richtlijnen voor beloning

20-07-2012 | Visie | Michiel van Esch

Aangezien elk bedrijf anders is, bestaat er geen blauwdruk die op alle beloningssystemen past. Om in deze lastige wateren onze weg te vinden, heeft Robeco een serie richtlijnen opgesteld voor het stemmen over beloningsvoorstellen.

(Dit artikel is Engelstalig)

Robeco votes on hundreds of compensation plans every year. It votes in a variety of countries, each of which has its own corporate governance code and corporate culture. Furthermore, the companies it votes on are active across the sector spectrum and have different strategic priorities. In short, no two companies are alike.

In order to navigate this tricky labyrinth, Robeco has developed a set of guidelines for voting on remuneration plans. In fact, Robeco has been advocating these guidelines for a number of years and runs an intensive engagement programme that attempts to influence companies to adopt them. In the guidelines, a handful of variables are of central importance:

Guideline #1: remuneration transparency is crucial
The first requirement is transparency. “If a company does not disclose information about its performance targets for variable pay and the level of its individual board members’ remuneration, it is impossible to make an informed decision and approve a payment plan,” says Engagement Assistant Michiel van Esch. In such instances, he adds, management should not expect a vote in favour of its remuneration plan.

That said, Robeco does not encourage fussy disputes over small details in a compensation structure. “Plans should have a sufficient level of transparency to give shareholders insight into the circumstances under which directors are rewarded—and by how much,” he explains.

“If a company does not disclose information about variable pay performance targets, it is impossible to approve a payment plan”

It should be recognized, though, that transparency on remuneration does bring some disadvantages. Companies know what their peers are paid and, given the widespread belief that corporates need to attract and keep the best people, salaries can be driven up quite quickly. Although a lack of disclosure might hold down this upward pressure, it also prevents shareholders from engaging with management to ensure that pay is aligned with their best interests.

Guideline #2: shareholders need to have a say on pay
The second requirement is for shareholders to have the right to have a say on pay. Not all markets require shareholder voting on remuneration plans; there are also differences on whether such votes are binding or advisory, and in voting frequency.

In the US and the UK, for example, shareholders vote on companies’ compensation plans annually. In the Netherlands, remuneration policy only comes up for shareholder approval when changes are proposed. In many other countries, it is not possible to vote on remuneration at all.

Another distinction is whether shareholder approval is needed before a plan is implemented or at year-end. Approval prior to implementation—as is the case in the Netherlands—triggers companies to take shareholders’ concerns into account beforehand. “That often results in constructive dialogue,” notes Van Esch.

Guideline #3: structure of compensation scheme is paramount
Third, the structure of compensation schemes is important. “In our view, the structure of a compensation scheme is more important than the level of remuneration itself,” says Van Esch. And while Robeco does not endorse excessively high remuneration, it should be stressed that such excesses often result from bad design.

A plan should be designed so that board members are remunerated for longer-term shareholder-value creation. “As a result, we prefer payment plans to have a healthy balance between long-term and short-term performance targets,” he says.

Guideline #4: non-financial targets are a positive
In addition, these targets should not be purely financial ones. “We encourage companies to adopt sustainability targets in their remuneration plans. In all these instances, though, pay should have a clear link to performance,” says Van Esch.

Companies that make more efficient use of natural resources, for example, will lower both their costs and their impact on the environment. “It thus pays to take such variables into account when designing a remuneration plan,” he adds.

Guideline #5: claw-back provisions necessary
Finally, what if it turns out that the basis of variable pay-outs was flawed—in the instance of fraudulent accounting, for example? To cover such circumstances, claw-back provisions should be in place.

Engagement preferred to voting against management
What happens if a company does deviate from one of the best-practice guidelines? Van Esch emphasizes that voting against management in such circumstances is not necessarily warranted. This is mainly because there is no single, one-size-fits-all remuneration plan. “Our guidelines should be seen as precisely that: they should not be viewed as a straightjacket,” he says.

There’s a more important reason why a vote against management isn’t always the smartest move. “That’s because it is not necessarily the most effective way to influence a remuneration plan,” explains Van Esch.

What’s the alternative? “We prefer to speak with a company before voting against management in the event that we disagree with a remuneration plan,” he says.

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