14 Transparency

The ‘first resort’ in company law when pay-related unrest raises its head is transparency. The introduction of the duty to disclose into law or codes aims to hit several birds with one stone, including, and primarily, (i) improvement to internal and external control and (ii) the protection of investors. In addition, this duty to disclose is usually designed with another goal in mind too: (iii) limiting the increase in executive compensation.

The remuneration scandals that followed on the heels of the Great Depression show that a certain amount of openness regarding executive compensation is essential. The expansion in the function of remuneration has also ensured that each of the countries investigated has undergone an individualisation of remuneration information. However, a consistent approach to the question of which information is essential to arrive at an improvement in the control and the protection of investors is missing in all cases. As a result, the duty to disclose has a certain randomness about it. In addition, a clear difference is observable between the far-reaching duty to disclose in the United Kingdom and the United States, and the more lenient regime in the Netherlands and Germany. More detailed research to establish what is the minimum remuneration information required to exercise control and protect investors is therefore needed.

Answering the question of which remuneration information should be made public depends in part on the different interests that are involved in justifying access to this information. I have isolated three. First there is the interest of the shareholders in gaining insight into the costs incurred in running the company. This requires at the very least that the total amount of the ex post remuneration of the board of management, and perhaps also that of every individual executive, being made public. The shareholders must also be able to gain a good impression of how the supervisory board deals with the power to determine individual remuneration within the framework of the remuneration policy. The acquisition of information on how the determination process runs and how the agreed ex ante remuneration relates to the remuneration policy is indispensable for this. Nowadays, the diverse internal remuneration relationships have resulted in other stakeholders also gaining the right to this information.

The modern way of remuneration, finally, has also resulted in the need to give both shareholders and other stakeholders insight into the way that executive compensation acts as an incentive. The structure of remuneration and the share and option portfolios of each individual executive should be made public. If these three interests are satisfied, then it can be stated that sufficient accountability regarding executive compensation has been demonstrated. In addition, the above also makes clear that a revised means of remuneration can lead to a decreased need for accountability.