European parliamentarians have watered down proposals for a binding vote on executive pay, ahead of negotiations with EU member states over the Shareholder Rights Directive.
In an amendment agreed by the European Parliament on Wednesday, member states will be allowed to decide if shareholder votes on pay should be binding or advisory – going against the grain of the European Commission’s initial proposal endorsed by the Council of the EU in early March.
The compromise draft of the directive agreed by member states in March said countries should ensure a vote on pay was binding.
The draft added: “A remuneration policy shall continue to apply until a new one is approved by the general meeting.”
In a statement, the European Parliament said MEPs had instead agreed that individual countries would be allowed to decide whether votes should be binding or not, likely to be agreed when the directive is transposed into national law.
Other changes proposed by MEPs will see listed companies obliged to publish a breakdown of taxes paid in each country they operate, as well as any public subsidies received.
Sergio Cofferati, the Italian MEP who has acted as rapporteur for the Shareholder Rights Directive, praised the overwhelming vote in favour of the law – approved by 556 parliamentarians, with 67 opposed and 80 abstentions.
“The approved text contains important instruments to fight tax evasion and tax avoidance, in particular a country-by-country reporting obligation that would ensure multinationals openly declare the taxes they pay in each country they operate in,” he said.
Referencing recent disclosures on the tax arrangements of multinationals based in Luxembourg, he added: “We cannot miss this opportunity, in particular after Luxleaks and other scandals.”
In a joint statement earlier this week, UK NGO ShareAction and Global Witness expressed disappointment about the shift away from a binding vote on pay.
The NGOs also noted the shift away from mandatory disclosure of investor engagement policies with companies, moving to a ‘comply-or-explain’ approach.
Cofferati was nevertheless positive about the legislation.
“The vote is an important step forward to steer companies and investors towards long-term-oriented decision making and to ensure more transparency in the governance of European companies and engagement of institutional investors and asset managers,” he said.