What’s currently driving disclosure in Europe?

Denmark

The Copenhagen Stock Exchange has released good practice guidelines requiring a greater level of disclosure. To date, few companies have complied with these guidelines. However, we expect to see a move toward individual named executive disclosure and a greater level of information on practice and policy.

France

We do not expect to see major changes to disclosure in the short term. However, President Nicolas Sarkozy is currently presenting a draft law to parliament, which is directed at curbing excessive executive severance arrangements and focuses on performance-related pay, new rules on stock options and greater transparency. Some companies in France currently provide information well beyond the disclosure requirements.

Germany

We expect a review of existing regulations. Where companies are not voluntarily acting to improve disclosure, we expect additional regulatory activity. For the first time in 2006, annual reports of listed companies will have to disclose individual executive compensation practices. There is also a proposal for a cap on executive severance payments, following several controversial payouts in Germany. While currently only a small number of companies are providing full disclosure, there is growing pressure for more and smaller companies to provide it. Germany is one of the few countries with a binding vote on executive pay.

Ireland

The disclosure requirements in Ireland are similar to those in the UK a few years ago. We therefore expect a move toward the current UK levels of disclosure over the next few years, resulting in increased disclosure of incentive plans and peer groups used for benchmarking. In addition, there may be some pressure to introduce an advisory vote for shareholders.

Italy

We observe an increase of disclosure on performance plans, compensation philosophy and long-term incentive values and criteria, according with the recent regulations of the “Consob” Authority. We also expect a greater focus on peer groups used to benchmark executives' pay and an increase of the role and power provided to the Remuneration Committee. There has been demand for greater disclosure of the compensation policy for non-Board member executives with strategic roles.

Netherlands

In December 2006, the Dutch Monitoring Committee Corporate Governance Code advocated more uniform disclosure of executive compensation practices in annual reports, with more transparency and a clear link between pay and performance.

Norway

The Norwegian code of practice on corporate governance is explicit and recommends detailed remuneration disclosure. However, in its current form it is fairly new, so not all companies have taken all the recommendations into consideration nor implemented them to a full extent. The majority of the biggest and more international companies already comply with the corporate governance (CG) recommendations and we expect many companies will follow. The main corporate governance principle is to “comply or explain”, so non-compliance with the recommendations are to be met with a sufficient explanation of the rationale for divergent practice. Another main driver of increased disclosure is the government's guidelines on executive remuneration in state-owned companies. In the coming years, we expect a move towards the level of UK and US disclosure practice, with more transparency and details on incentives, policies and peer groups.

Portugal

Currently companies quoted on the Stock Market are obliged to disclose executive compensation, but are avoiding this. We anticipate that the authority CMVM (the stock market regulator) will increase enforcement of executive compensation disclosure over the coming years.

Spain

International growth of some of the largest Spanish companies is putting those companies under increased public scrutiny, therefore making them (and others) pay increased attention to compensation issues and disclosure. In addition to this, a new Head of the Spanish Supervisory Authority has been appointed. We anticipate a move toward higher disclo-sure requirements over the coming years.

Sweden

We expect to see a requirement for individual disclosure of pay for each director by name (they currently only provide this information for the CEO, with other executives’ pay provided as an aggregate amount), with more transparency on incentives, policies and peer groups, as these Nordic countries move toward the level of US disclosure.

Switzerland

Thomas Minder, the boss of Trybol, a Swiss cosmetics company, has been pushing for a national vote to change Swiss law and provide greater trans-parency on and accountability for executive pay. As part of this drive, he wishes to introduce a binding vote by shareholders on the total amount of pay for board members.

UK

There is already a high level of disclosure required in the UK under the Companies Act and other regulations. There may be an additional requirement to disclose the annual value of long-term incentives in a similar way to in the US.

Steps to becoming disclosure-ready

In anticipation of greater disclosure requirements for executive compensation practices, we recommend that companies take the following steps to ensure they will be ready to meet the higher levels of transparency – and thus deeper scrutiny – of their executive pay decisions:

• Decide the disclosure strategy in advance of expected requirements. Should your company provide a high level of disclosure in advance of requirements (this may be prudent where the company is in an industry with a high level of disclosure), meet the minimum disclosure required, or fall somewhere between the minimum and high levels.
• Ensure that the Remuneration Committee has experienced members and receives data and support from relevant Executive Remuneration experts.
• Clearly define peer groups for both scale and design of remuneration.
• Ensure that performance-related award elements of pay can be clearly explained and justified.
• Review the design and value of pension plans and long-term incentive plans.
• Ensure that compensation data is provided in the form required for disclosure (in particular, for pension and share-based awards), and that the content in the annual report and accounts meets at least the minimum disclosure requirements.

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