The Executive Remuneration Review: European Union


The European Union has continued to keep an eye on executive remuneration and has, during 2020, issued guidance in relation to restricting executive awards to those companies that have taken state aid as a result of the impact of the covid-19 pandemic.

This year has also seen an emphasis on the environmental, social and governance (ESG) impacts of a company, with guidance being provided on how companies should conduct their business with regard to these factors. While these are not specific to remuneration, their significance means they are likely to impact executive incentive design.

The EU has, however, produced legislation that actively impacts pay for companies over many years. This has included legislation on share dealing rules under the Market Abuse Regulation (MAR), corporate governance developments under the Shareholder Rights Directive (SRD), as recently amended by the new Shareholder Rights Directive II (SRD II), securities laws under the EU Prospectus Regulation (EUPR) and data protection rules under the General Data Protection Regulation (GDPR). EU requirements are highly detailed and change frequently.

The EU has had its sights set on regulating executive pay for many years, particularly for companies in the financial services sector. Following the 2007–2008 global financial crisis, the Financial Stability Board (FSB) published Principles for Sound Compensation Practices in April 2009 and Principles for Sound Compensation Practices – Implementation Standards in September 2009. The EU, as a member of the FSB, quickly asserted that incentive arrangements were a significant factor motivating the excessive risk-taking that allegedly led to the crisis and introduced significant regulatory controls over pay in the financial services sector.

EU-wide regulation is intended to ensure a consistent approach throughout all Member States. The EU believes this is crucial due to competitive pressures in the financial services sector and the fact that many firms have cross-border operations. The initial focus of this regulation was on credit institutions and the largest investment firms. However, the EU has since expanded regulation to other subsectors, including asset managers and insurers.

This chapter is not intended to be comprehensive but will alert readers to relevant issues and developments that they should be aware of.


1 Janet Cooper is a partner, Matthew Hunter is an associate and Emilie Sylvester is a legal assistant at Tapestry Compliance Limited.

2 Regulation (EU) 596/2014.

3 Directive 2007/36/EC.

4 Directive (EU) 2017/828.

5 Regulation (EU) 2017/1129.

6 Regulation (EU) 2016/679.

7 Directive 2010/76/EU, amending Directives 2006/48/EC and 2006/49/EC.

8 Directives direct Member States to implement national law to give effect to objectives set out in the Directive within a set time frame. National implementation can give rise to inconsistent implementation around the EU.

9 Directive 2013/36/EU, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC.

10 Regulation (EU) No. 575/2013. Regulations directly apply to regulated entities and Member States and do not require transposition into the laws of each Member State.

11 Commission Delegated Regulation (EU) No. 604/2014.

12 Directive (EU) 2019/878 and Regulation (EU) 2019/876, respectively.

13 At the time of writing in August 2020, draft regulatory technical standards have been published by the EBA and await adoption by the European Commission: regulatory-technical-standards-identified-staff-remuneration-purposes#pane-289.

14 Directive (EU) 2019/2034 and Regulation (EU) 2019/2033, respectively.

15 As at August 2020, consultation papers have been issued by the EBA in connection with draft regulatory technical standards relating to: (1) the identification of material risk takers under IFD and IFR; and (2) the instruments that can be offered to satisfy the requirement to pay a portion of variable remuneration in defined instruments: regulatory-framework-investments-firms.

16 Directive 2011/61/EU.

17 Directive 2009/65/EC, as amended, in particular by Directive 2014/91/EU.

18 Commission Delegated Regulation (EU) 2015/35.

19 Directive 2009/138/EC.

20 Commission Delegated Regulation (EU) 2017/565.

21 Directive 2014/65/EU.

22 Directive (EU) 2016/97.

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