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Europe: Signs of restraint on executive pay

22 April 2013

As European companies prepare to face investors at this year’s round of shareholder meetings, there are signs that a mood of greater restraint may be setting in according to the Financial Times in a report which cites the 32% cut in the pay of Emilio Botín, Banco Santander, executive chairman, the fall by a half in the pay of Anshu Jain, co-chief executive of Deuche Bank; and, the return of €2 million of his pay package by the Austrian chief executive of Raiffeisen Bank International, Herbert Stepic.

The newspaper quotes the head of corporate governance at a Swiss investment house as saying “Companies don’t want to be in the spotlight on pay and are in general trying to show common sense”.

The head of corporate governance at a French asset manager takes a similar line: “Remuneration is at the forefront of the discussions between investors and companies. Most companies are trying to show restraint,” he says.

The UK has also caught the mood. According to consultants Towers Watson, the median pay increase among FTSE 100 chief executives who have disclosed their salaries for 2013 was 2.5 per cent – below the rate of inflation.

Although the shift in corporate attitudes is in part a response to shareholder pressure, the biggest changes have been forced by politicians and regulators.

The EU has laid out plans to cap bankers’ bonuses at twice their salary. In France, the government has capped the pay of chief executives of state-controlled companies such as EDF at €450,000 a year, while under proposals being considered in Germany, listed companies will be obliged to set a wage cap, as well as limiting performance-related bonuses.

The Spanish government has also proposed giving shareholders a greater say on pay, and the Bank of Italy has told Italian banks which did not make a profit in 2012 or have low core capital that they should not pay dividends or bonuses to senior managers this year.

The most drastic steps, have come in Switzerland, where shareholders have been granted a binding say on pay and, at the same time, golden hellos and goodbyes have been banned. Individuals who breach these rules face criminal penalties.

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