Remuneration Policy in Financial Institutions - Bill Introduced

On 9 November 2010 the Danish Minister for Economic and Business Affairs introduced a Bill on remuneration policies in financial institutions and financial holding companies. Among other things, the Bill will implement the new rules on remuneration laid down in the European Capital Requirements Directive, and will incorporate the European Commission's recommendation to introduce remuneration policies in the financial sector as well as the so-called Danish "Government Agreement" on, for example, restricted use of share options as a remuneration tool.

The Bill is intended to receive its first reading on 23 November 2010 and is expected to be approved at the planned third reading on 16 December 2010.

Key features The key features of the Bill are:

financial institutions and financial holding companies must have remuneration policies and practices which are consistent with and promote sound and effective risk management; specific rules will be inserted into the Danish Financial Business Act regulating the payment of variable remuneration to the boards of directors, the executive boards and significant risk takers in financial institutions and financial holding companies; major financial institutions and financial holding companies must establish a remuneration committee; financial institutions and financial holding companies will be subject to more stringent disclosure requirements with regard to remuneration. As opposed to the Capital Requirements Directive, the Bill will also regulate insurance companies, and the remuneration rules will also apply to ATP (a Danish labour market pension and social insurance firm) and to LD (a Danish employee investment management firm).

This newsletter will briefly describe the proposed new rules included in the Bill.

Remuneration policy, guidelines and disclosure

According to the Bill, any financial institution and financial holding company must have a remuneration policy which is consistent with and promotes sound and effective risk management.

The remuneration policy must be presented for approval by the supreme body of the company, i.e. typically the general meeting of shareholders, who must also approve guidelines on grant of variable remuneration and guidelines on severance pay.

The calculation of performance-related variable remuneration must be based on an assessment of the performance of the individual and of the individual's business unit, and of the overall results of the company.

Finally, in his report to the general meeting of the company, the Chairman of the company's board of directors must account for the remuneration of the members of the board of directors and the executive board during the previous, current and next financial year. The Danish Financial Supervisory Authority (Finanstilsynet) will be authorised to lay down detailed rules on the duty of financial institutions and financial holding companies to disclose information regarding the remuneration of the aforesaid groups of individuals. According to the Bill it will be a...