March 14, 2017 / 12:37 PM / 3 years ago

EU adopts rules to curtail executive pay, avoid short-term investing

A woman walks past the European flag outside the EU Commission headquarters in Brussels, Belgium March 1, 2017. REUTERS/Yves Herman

BRUSSELS (Reuters) - Shareholders in listed European Union companies will have a greater say in setting executive pay under new rules adopted by EU lawmakers on Tuesday.

Investors in the more than 8,000 listed companies on EU markets will be able to issue binding votes on remuneration policies, although EU states are free to make this advisory and will have about two years to enact them in national law.

The Parliament’s vote came after a deal reached in December with representatives of the 28 EU states on measures which are also meant to encourage long-term investment in listed firms by asset managers, insurers and pension funds and avoid short-termism.

“For a stable European economy, it is essential to look beyond fast profits and focus on long-term success,” Vera Jourova, the EU commissioner in charge of the dossier, said.

The rules were proposed in 2014 in the wake of the global financial crisis and the euro zone debt crisis which put the short-term practices of the financial sector under scrutiny.

It also drew attention to what managers were paid, which was often “perceived as undue in the light of the weak performance of the director or the difficult situation of the company”, the Commission said in a note.

“There will be a more direct link between directors’ pay and companies’ results,” said Sergio Cofferati, the center-left lawmaker who steered the new rules through the EU legislature.

To counter short-termism, insurers and pension funds, which hold most of the shares of listed companies, will have to show their investment strategy, without revealing sensitive details.

The increased transparency is expected to extend the average shareholding period from eight months, the Commission said.

Reporting by Francesco Guarascio; Editing by Alexander Smith

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