EU wants more shareholder say over exec pay

London - Listed companies across the European Union must get shareholder approval on pay policy for top executives under a draft European Union law aimed at making firms more answerable to their owners.

EU financial services chief Michel Barnier has proposed toughening up the 28-country bloc's law on shareholder rights to end "short-termism", though stopping short of capping pay in the way he has separately done for banker bonuses.

"Today's proposals will encourage shareholders to engage more with the companies they invest in, and to take a longer-term perspective of their investment," Barnier said in a statement on Wednesday.

The plans need approval from EU states and the European Parliament to come into force, with changes likely.

Under the proposals, the bloc's 10 000 listed companies would have to publish clear and comparable information on their remuneration policy for executives and seek shareholder backing for it every three years.

The policy on pay must explain how it contributes to the long-term interests of the company and state a maximum amount of pay for executives.

It should also say why the ratio or difference in pay between directors and full time staff is appropriate, though it does not set a fixed ratio.

Shareholders would have the right to vote annually on the company's report on pay packages for directors, but it would be up to member states to decide what happens if the report is rejected.

Institutional investors and asset managers would also have to show how they take into account the long-term interests of the people whose money they invest in companies, including the reasons behind their investment strategy.

Asset managers would not be forced to vote in company meetings but have to explain if they did not.

Other changes include making it easier for companies to find out who its shareholders are.

Proxy advisors or firms that give investors advice on how to vote in annual meetings, would also have to disclose certain information about how they prepared their guidance.

In a separate initiative, Barnier published non-legally binding guidance for the system used widely in Britain and some other countries whereby companies state if they comply or not with national corporate governance codes.

The system generally works well but companies that depart from a code often fail to explain why properly, Barnier said.

The guidance aims to improve the quality of statements companies make but if it proves ineffective the European Commission has the option of proposing a draft law.