Turid Solvang, ecoDa Chair, spoke at the 19th European Corporate Governance Conference in Bratislava on 27 October 2016 (ecoDa being a partner of the conference).

28.10.2016

Turid Solvang, ecoDa Chair, spoke at the 19th European Corporate Governance Conference in Bratislava on 27 September 2016 (ecoDa being a partner of the conference).

Taking part in the panel discussion related to remuneration, Turid Solvang highlighted the following:

Judging from the past decade, if companies fail to respond properly, regulation will continue to proliferate. And ultimately: If regulation fails to produce the desired results, the board's duties and privileges may be delegated to other bodies.

Can shareholders effectively control executive pay?

Well, shareholders certainly have a vested interest in ensuring that remuneration corresponds with strong performance. But:

  • Is it realistic to expect passive shareholders to morph into micro-managers? Or will they just hand powers over to proxy advisors?
  • Also, at least for institutional investors, their commercial perspective is often quite short. Even so called "long term incentive plans' look at 3-year periods. In the context of building sustained and sustainable growth, that is not a very long time! And finally: Investors have their own skin in the game. Whichever other motives they may have, looking after public interest is - traditionally - not their primary responsibility.

While individual shareholders' interests may rule the General Meeting, it is the board of directors' task to consider the company's overall interests. For that reason, the independently-minded board is the body best placed to oversee the company's interests, including decisions about executive remuneration.

Boards should:

  1. Ensure that remuneration is aligned with the company strategy;
  2. Tell the story; explain why this level of compensation is right for this company!
  3. Communicate regularly; not wait until the General Meeting to speak with shareholders.
  4. In the end, we need to change the corporate culture, and the tone from the top.

Conference video: here