In recent years, the remuneration of top directors has been a recurring topic of discussion. The matter has also drawn attention from the political arena. On 12 June 2018, the Senate adopted a legislative amendment that gives the works council (OR) more influence over directors’ salaries. The boards of businesses with a minimum of 100 employees are obliged to enter into discussion with the works council regarding remuneration of their directors. It is not yet known when the legislative amendment will come into effect.
What rights does the work council (OR) have now?
At the moment, larger companies (100+ employees) must submit information at least once a year to the OR regarding the remuneration arrangements of directors and the terms and conditions of employment for employees. This includes regulations in the areas of profit sharing, performance pay, severance arrangements, and options and shares plans. The information provided by the company can be discussed during a consultation meeting with the OR; however, this is not mandatory under the current regulations. This requirement is set down in the Works Councils Act (“Wor”).
What rights will be added?
After the legislative amendment, the terms and conditions of employment and remuneration of directors must be discussed with the OR. This will include looking at the remuneration ratios in comparison to the previous year per different employee groups. In other words, the management board must consult with the OR regarding both the salary of the director and the pay differences in the company. The government hopes that the obligatory consultation within the company will encourage discussion. The decision concerning the level of remuneration for directors is reserved for the shareholders of the company. Nonetheless, the government believes that a more evenly balanced remuneration ratio within businesses is best carried out with more transparency. It is the intention that directors will be actively accountable for their salary and for the development of remuneration ratios within the company as a result of the introduction of this legislative amendment.
More information about the legislative proposal can be found in the explanatory memorandum.
We have extensive experience in advising directors and works councils on the application and use of the Works Councils Act. If you have questions about the above subject, we will gladly help you further.