Remuneration policy and annual remuneration reports are mandatory for listed companies

10.07.2019 Remuneration policy and annual remuneration reports are mandatory for listed companies

On 5 July 2019, amendments to the Law on Companies, obliging public limited liability companies whose shares are admitted to trading on a regulated market (“Listed Companies”) to approve and comply with a remuneration policy, also prepare annual remuneration reports entered into force.

Henceforth, all Listed Companies will have to approve a remuneration policy in accordance with the established procedure (if it has not been approved yet or has been approved not in accordance with the procedure provided for in the amendments to the Law on Companies) or to change the approved remuneration policy harmonizing it with the established requirements, to ensure that the policy is applicable to the persons concerned, as well as to submit remuneration reports to ordinary general meetings of shareholders. Pursuant to the established rules, the remuneration policy must apply at least to the CEO, members of the Board and the Supervisory Board of the Listed Company.

All Listed Companies must approve the policy at the next ordinary general meeting of shareholders by a majority vote that must be not less than 2/3 of the total number of votes cast by the shareholders participating in the meeting. In addition, it must be submitted for approval to the general meeting of shareholders at least every 4 years as well as in the case where there are substantial changes in the policy.

The head of the Listed Company must publish the remuneration policy and other data provided for in the law on the company’s website immediately after the general meeting of shareholders that approved the remuneration policy. This information is made public and available free of charge throughout the policy period.

A remuneration policy is a detailed document rather than a formal instrument, which, among other things, must state how the remuneration policy complies with the strategy, long-term objectives and interests of the Listed Company, must specify all remuneration components, including fixed and variable components of remuneration, bonuses, premiums, as well as the relative share of the remuneration components taking into account the full remuneration, information on periods of any remuneration payment deferrals and possibilities of recovering variable remuneration, remuneration criteria depending on financial and non-financial performance results, and how they contribute to the company’s business strategy, long-term objectives, and interests, also methods to be used for determining to what extent performance criteria are met, etc.

It is also important that from now on the board of Listed Companies will also have to approve a remuneration report in addition to other documents submitted to the ordinary general meeting of shareholders (an annual report, an audited set of annual financial statements, etc.). The supervisory board will be able to submit its comments and proposals to the general meeting of shareholders and the board in connection with its draft, also with respect to a draft remuneration policy, as well as concerning other financial documents submitted to the ordinary general meeting of shareholders.

Unlike the annual report with respect to which no decisions are made by the general meeting of shareholders, in this case the meeting will be entitled to take a decision on the approval of the remuneration report. The decision does not absolve the board of its responsibility for the decision taken, but should the meeting decide not to approve the report, when approving the next year’s report the board will have to indicate how the arguments of disapproval by the general meeting of shareholders have been taken into account.

Prepared by Mantas Gofmanas, Associate Partner at TGS Baltic