Remuneration reporting for listed companies in Belgium: new look and feel

Last year a number of new provisions affecting remuneration reporting in listed companies came into force. The act of 28 April 2020 (the SRDII Act) transposed the Shareholders’ Rights Directive II (SRDII)¹  into Belgian law, amending the Belgian Companies and Associations Code (BCAC). Also, on 1 January 2020, the new corporate governance code (CGC 2020) came into force, which also contains a number of provisions affecting remuneration reporting in listed companies.

This year, 2021, marks the first reporting cycle (for listed companies whose financial year coincides with the calendar year) for listed companies to comply with the amended provisions on remuneration reporting. This newsletter provides you with an overview of the most material changes and gives some guidelines on how to make sure your remuneration report and policy are fully compliant.

1. Remuneration policy vs remuneration report

One of the main goals of SRDII was to promote the long term engagement and ownership of shareholders in listed companies. A number of measures were taken in this respect, one being the introduction of a clear distinction between the remuneration policy and the remuneration report. Where the remuneration policy used to be a part of the remuneration report (and thus of the annual report), it is now a separate document which is subject to an ex ante binding shareholders’ vote, granting them (more of) a “say on pay”. The remuneration policy is intended to consist of forward looking principles on the remuneration of directors and management. The remuneration report on the other hand, provides an overview of the effectively paid remuneration.

2. Remuneration policy

2.1. Approval

The board of directors, upon the proposal of the remuneration committee, must draw up a remuneration policy concerning the directors, the other persons entrusted with the management and the persons entrusted with the daily management.

The remuneration policy shall contribute to the corporate strategy, long-term interests and sustainability of the company and shall clarify how it contributes to these objectives. The CGC 2020 adds that the board must ensure that the remuneration policy is consistent with the general remuneration framework of the company.

In accordance with the SRDII Act, the remuneration policy must be submitted for approval for the first time at the latest on the general meeting that deliberates on the annual accounts and the annual report of the first financial year starting after 30 June 2019 (which is in 2021 for companies of which the financial year coincides with the calendar year). The CGC 2020 which entered into force on 1 January 2020 already contained the obligation to draw up a remuneration policy and to submit it for approval to the general meeting. However, many listed companies made use of the comply-or-explain principle, applicable to the CGC 2020, to postpone the vote on the remuneration policy.

A review and a new vote are required at least every four years and, also, in an event of material change. If the remuneration policy is not approved, a new proposal must be submitted to the next general meeting of shareholders.

A rejection by the shareholders, however, does not paralyse the operation of the company, as the relevant managers can continue to be remunerated in accordance with the existing practice or policy until the new remuneration policy is approved.

2.2. Content

The remuneration policy must contain the following elements in accordance with article 7:89/1 BCAC.

1. a description of the various components of the fixed and variable remuneration, including bonuses and other benefits in any form whatsoever which may be granted to the directors, the other persons charged with the management and the persons charged with the day-to-day management, indicating the relative share thereof.


2. an explanation of how the pay and working conditions of the company's employees are taken into account when determining the remuneration policy;


3. if the company grants variable remuneration, clear, comprehensible and varied criteria for granting the variable remuneration. It shall include, in particular:
   1. the financial and non-financial performance criteria, including, where appropriate, corporate social responsibility criteria;
   2. an explanation of how these criteria contribute to the company's business strategy, long-term interests and sustainability;
   3. the methods to be used to determine the extent to which the performance criteria have been met;
   4. information on any deferral periods and on the company's ability to reclaim variable remuneration;
4. when the company grants share-based remuneration, the vesting periods and, if applicable, the retention of unconditionally awarded shares and how the share-based remuneration contributes to the company's business strategy, long-term interests and sustainability;


5. a description of the term of the contracts or arrangements with the directors, the other persons charged with management and the persons charged with day-to-day management and the applicable notice periods, the main characteristics of supplementary pension schemes and early retirement schemes, the conditions for termination as well as the severance payments;


6. a description of the decision-making process which is followed for its adoption, revision and implementation, including measures to prevent or manage conflicts of interest and, where applicable, the role of the remuneration committee or other competent committees


7. when the remuneration policy is reviewed, a description and an explanation of the significant changes that have occurred and how the votes and the views of the shareholders on the remuneration policy and the remuneration reports have been taken into account since the most recent vote on the remuneration policy at the general meeting of shareholders.

The parts in bold are new requirements compared to the remuneration policy that was part of the remuneration report. The new requirements clearly reflect the focus on the company's business strategy, long-term interests and sustainability which is the core of SRDII.

3. Remuneration report

3.1. Approval

The remuneration report is a part of the corporate governance statement in the annual report. The general meeting has to decide, by separate vote, on the remuneration report during the annual general shareholders’ meeting. The SRDII Act has not changed this principle but has clarified that this vote is an advisory one. This makes sense as the remuneration report provides an overview of the effectively paid remuneration of the previous year which can no longer be adjusted. The next remuneration report needs to explain how the vote of the general meeting was taken into account.

3.2. Content

3.2.1. Legal sources

Article 3:6, §3 of the BCAC describes the elements that the remuneration report must contain. This article is supplemented by Principle 7 of the CGC 2020 on the remuneration of directors and members of the executive management of listed companies and the (non-binding) draft "Guidelines on the standardised presentation of the remuneration report under Directive 2007/36/EC, as amended by Directive (EU) 2017/828, as regards the encouragement of long-term shareholder engagement" (the Guidelines) drawn up by the European Commission. Please note that the Guidelines have not yet been adopted in their final form.

The Corporate Governance Committee has published an explanatory note, intended as a supporting instrument for listed companies, to comply with the legal obligations in terms of remuneration reporting (the CGC Note). The Committee has limited itself to a technical analysis and it is not intended that this explanatory note should serve as a recommendation or interpretation. The explanatory note can be found on their website.

3.2.2. Required elements

The remuneration report must contain the following information (new insertions are indicated in bold):

1. Total remuneration
   1. Disaggregated information by component
   2. Relative share of fixed and variable remuneration
   3. Explanation of how the total amount of remuneration is consistent with the remuneration policy adopted, and in particular how it contributes to the long-term performance of the company
   4. Information on how the performance criteria were applied
2. Share-related remuneration
3. Severance payments
4. Use of claw back right
5. Deviations from the remuneration policy.
6. Evolution of remuneration and performance of the company over the last five years
7. Ratio highest and lowest remuneration
8. Information on the shareholders' vote

3.2.3. Individual or global basis?

In relation to the directors, the members of the management board and of the supervisory board (in a dualistic structure), as well as the persons in charge of the daily management, the information in paragraph 1 - 5 shall be provided on an individual basis.

In relation to the other persons charged with management, the information referred to in paragraph 1, 4 and 5 shall be provided as a whole, while the information referred to in paragraph 2 and 3 shall be provided on an individual basis. This means that for members of informal management or executive committees in a one-tier structure (other than the persons charges with daily management), aggregate figures still suffice (status quo). Given the fact that a very limited number of listed companies has opted for a dualistic structure, this provision of the SRDII Act has not turned out to be the revolution that was initially feared.

3.2.4. New requirements

The new requirements are briefly discussed below. More guidance and useful template tables can be found in the Guidelines and the CGC Note.

(a) An explanation of how the total amount of remuneration is consistent with the adopted remuneration policy, and in particular how it contributes to the long-term performance of the company

This section should explain how the remuneration is in line with the remuneration policy and how it contributes to the company's strategy, long-term performance and sustainability. The Guidelines recommend that this be presented in narrative as well as numerical form (if possible). The CGC Note recommends elaborating on the performance criteria (as defined in the policy) and how they were applied.

(b) Information on how the performance criteria were applied

The CGC Note provides guidance regarding how this information should be presented. In summary, the following is expected:

• a description of the performance criteria (financial and non-financial) as defined in the policy, the corresponding type of applicable remuneration and its relative share;
• (optional) the minimum and maximum performance targets and the corresponding amounts;
• the measured performance and actual remuneration; and
• a table explaining the performance.

(c) Evolution of remuneration and the company’s performance over the last five years

The remuneration report must describe (i) the annual change in remuneration, (ii) the annual change in the development of the company's performance and (iii) the annual change in the average remuneration, expressed in full-time equivalents of employees of the company other than the directors, the members of the management board and the supervisory board, the other persons in charge of the management and the persons in charge of the daily management over at least five financial years. These must be jointly presented in a way that allows comparison.

1. Annual change in remuneration

The SRDII Act did not specify whether this refers to the total remuneration of all directors and executive managers taken together, or to individual remuneration, however the same transparency principles should apply as for the information set out in paragraphs 1 – 5 of section 3.2.2 above.

2. Annual change in the evolution of the company's performance

The CGC Note expects, at least, the following criteria to be reflected:

• the evolution of the performance indicators that determine the variable remuneration of the directors and members of the executive management;
• the net profit for the year;
• non-financial criteria or other indicators that demonstrate the company's performance against its long-term strategy (e.g. sustainable development goals, etc.).

These data should be provided on a consolidated basis.

3. Annual change in average employee remuneration

It is important to clearly describe the methodology used to calculate the average employee remuneration (whether only the employees of the listed entity are taken into account or all employees of the consolidated group). If useful, one can also indicate the evolution within certain groups of employees.

(d) Ratio highest and lowest remuneration

The remuneration report should also mention the ratio between the highest remuneration of the members of the executive management and the lowest remuneration (in full-time equivalent) of the employees. This can be limited to the employees of the listed entity.

3.2.5. Transitional regime

In the first financial years for which the reporting obligation exists, listed companies may not have the required information regarding the previous years immediately available.

In such cases, the company has a choice (to be made clearly and consistently):

(a) to provide such information regarding previous financial years, but indicating this clearly by means of a footnote.

(b) not to provide such information for previous financial years in which the reporting requirement did not yet apply.

For further questions on the topic or assistance with your remuneration policy or report, please do not hesitate to reach out to us.

¹Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement