27 Division of powers as the remedy

The interplay between the powers of the supervisory board and the general meeting when setting executive compensation also makes it possible for pressure from shareholders to contribute to a shift in paradigm to counteract the problems highlighted in the second part of this thesis. However, expectations should not be too high. In practice, shareholders are more often the problem than the solution. Many institutional investors share the vision of how the top echelons of the company should be remunerated. They expect remuneration to be used as a management tool and require remuneration to be linked to predetermined and objectively performance measures, with an emphasis on the creation of shareholder value. In addition, determination of the ex ante amount based on external references is regarded as standard. Shareholders generally only get involved if there are abnormally high levels of remuneration combined with relatively poor performance. The main point of attention in such instances, partly thanks to influential proxy advisors, is the relationship between pay and performance. Further, shareholder involvement tends to be limited to exceptions.

Strengthening the position of the Works Council when determining the remuneration policy or individual remuneration by granting a right of consent would undoubtedly ensure that the internal remuneration relationships would be taken into account. Nevertheless, I am not in favour of this solution. In my opinion, the right of consent would lead to a warped company law system. In addition, the Works Council already holds significant legal powers to promote its view of executive compensation. Efficient ‘supervision’ by the Works Council of executive compensation should not in my opinion be dependent on newly designed regulations but on the way that the relevant Works Council makes use of the existing legal possibilities. In addition, the Works Council could cooperate with trade unions, making use of the powers held by trade unions to influence the remuneration policy.

There are already many instruments in place that can exert pressure on the supervisory board to choose an alternative way of determining or paying remuneration. Whether this will contribute to the essential shift in paradigm will depend on the way that these instruments are used. Further, the Dutch company law system can play an important role in the resolution of the highlighted key issues once institutional and private investors have undergone this shift in paradigm. Changing the division of powers is not necessary for this.