Slimming down the fat cats’ salaries

By Leen Van Parys

ONLY a couple of days after the European Commission published recommendations on the disclosure of remuneration to directors, Belgium has provided a case-study of how secrecy over top managers' salaries can damage a company.

Jan Coene, the ex-chairman of Belgian telecom company, Belgacom, stepped down as chief executive officer of the Ypres-based builder of textile machines, Picanol, after it became clear he had received a sign-up fee of 6.6 million euro that was never communicated to the company's remuneration committee.

Announcing the resignation on 10 October, Picanol said that Coene would refund “in its entirety” the fee he had negotiated with the chairman at the time of his recruitment in 2001.

Coene had decided to refund the amount, the company said, because he had received a higher than expected bonus of 2.7 million euro, equal to 3% of the value increase of the company in 2001-03.

This prompted further inquiries into the salary package of Jan Coene, who has been feted as one of Belgium's most successful entrepreneurs. The newspaper De Standaard estimates that Coene had earned about 23m euro in the three years he has been leading Picanol.

The government then dismissed Coene as Belgacom chairman, re-opening the debate on transparency of remuneration for top-level management.

The European Commission recommends that all listed companies should release a statement of their policy on directors' remuneration for the following year. Companies should also disclose the remuneration and/or emoluments of individual directors: the shares or the rights to share options granted to them, their contribution to pension schemes and any loans, advances or guarantees to each director.

“Shareholders must be given the means to act as watchdogs, to protect their interests as well as those of the other stakeholders,” Commissioner Frits Bolkestein said this week at a European corporate governance conference in The Hague. “Member states should ensure a high level of transparency for directors' remuneration and encourage shareholders to make their voice heard on the remuneration policy of the company and on remuneration items which are closely linked to the share price.”

According to Marco Becht, of the European Corporate Governance Institute, the issue of transparency is far more complex. “There needs to be more transparency, but obliging full disclosure of the remuneration also shows too little confidence in the board.

“Excesses can also be prevented by allowing the board to conduct their own CEO recruitment and remuneration policy,” he said.

In the wake of the Picanol scandal, two Flemish liberal party senators reintroduced a bill obliging listed and public companies to disclose the remuneration of individual directors.

This goes further than the Belgian code being prepared by the Corporate Governance Commission which is to be published in December. A draft, published in June, advocated the principle of “comply or explain” and recommended the disclosure of the individual remuneration of the CEO, but not of every individual director.

“The annual report should at least disclose the global remuneration of the senior management, with a split in three global amounts: basic remuneration, variable remuneration (bonuses relating to the financial reported year) and other components, such as pension costs, insurance coverage,” it says.

Coene's salary package is not the rule in Belgium. Most CEOs of listed companies earn around 1.5 million euro a year. “Shareholders and board should decide whether it is worth paying a certain amount to the CEO,” Becht said.

“Top-level CEOs are supposed to have special skills, are mobile and can easily shop around for other jobs. It might be worth paying them a celebrity fee.”

• Leen Van Parys is a freelance journalist based in Brussels.

Article reports on a Belgian code of corporate governance and the European Commission's recommendations on the disclosure of remuneration to directors.