Are there any corporate governance guidelines that apply to the operation of incentive plans?

Employee Incentives

United States Small Flag United States

If an issuer is organized under the laws of a US state (such as Delaware), the company must operate its plan in compliance with that state’s corporation laws. Each state varies, but one of the important governance points is whether shareholder approval of the plan is required (it is always required for US public companies, ISOs, ESPPs and often for plans seeking exceptions from securities registration in California).

State corporation law may also regulate whether and under which circumstances the company’s executives may be delegated the power to make equity awards on behalf of the company’s compensation committee to non-executive employees.

Public companies may only grant equity to executive officers through a properly constituted compensation committee (generally, directors who are “independent” for stock exchange purposes and who satisfy certain other criteria for purposes of Section 16 of the Securities Exchange Act of 1934 (“’34 Act”)).

In light of stock option “backdating” and other US corporate governance failures, US public companies typically only grant equity at certain regular, pre-established dates throughout the year, avoiding times just before and after earnings releases and outside of periods when material non-public information could affect the grant price.

Mexico Small Flag Mexico


Romania Small Flag Romania

Romanian law does not set out specific express guidelines for the operation of incentive plans.

Denmark Small Flag Denmark

The Danish corporate governance guidelines, which applies for public companies, recommend that the board of directors compose a remuneration policy, which applies to the board of directors and the executive board.

The board of directors and the executive board, normally, participates in Incentive Plans and, therefore, the guidelines apply to the board of directors and the executive board’s Incentive Plans.

The recommended policy includes:

  • a detailed description of the components of the remuneration package, including any Incentive Plan,
  • a reason for the chosen remuneration package, including each component of the package,
  • a description of the criteria underlying the balance between the individual remuneration components, and
  • a description of the connection between the remuneration policy and the Company’s long-term value creation and the relevant goals for this.

Ecuador Small Flag Ecuador

Corporate governance guidelines have not been established as a standard in local legislation or corporate local practices. Therefore, any incentive plan beyond those legally or contractually established will apply based on the internal policies of each company.

China Small Flag China

Yes, the following corporate governance guidelines generally apply to the operation of the incentive plans,

  1. Company Law of the People's Republic of China
  2. Securities Law of the People's Republic of China
  3. Administrative Measures for the Supervision over Unlisted Public Companies
  4. Guidelines on the Implementation of Employee Stock Ownership Plans and Stock Option Incentives by Pilot Innovative Enterprises
  5. Announcement of the State Administration of Taxation on Handling Enterprise Income Tax Involved in the Implementation of Equity Incentive Plan by Chinese Resident Enterprises
  6. Circular of the State Administration of Taxation on Issues Concerning Individual Income Tax in Relation to Equity Incentives

The Netherlands Small Flag The Netherlands

The Dutch Corporate Governance Code contains general principles that apply to the remuneration of the management board. These principles need to be applied or it needs to be explained in the annual accounts of the company why they are not applied. These principles inter alia stipulate that the remuneration policy should include:

(i) an appropriate ratio between the variable and fixed remuneration components. The variable remuneration component should be linked to measurable performance criteria determined in advance, which are predominantly long-term in character;

(ii) if shares are being awarded, the terms and conditions governing this. The Shares need to be held for at least five years after they are awarded; and

(iii) if share options are being awarded, the terms and conditions governing this and the terms and conditions subject to which the share options can be exercised. Share options cannot be exercised during the first three years after they have been awarded.

If there is a financial undertaking (financiële onderneming) with its seat in the Netherlands within the group, it should be checked whether additional remuneration rules apply, which may restrict the possibility to offer awards to employees.

Brazil Small Flag Brazil

Compensation for statutory directors and officers of any corporation, whether publicly or closely held, irrespective of its size, is decided at the general meeting, and compensation should take into account responsibilities, time devoted to duties, competence and professional reputation, and the value of their services in the market. As a rule, there is no need for additional approvals, except otherwise provided under the corporate internal guideline or bylaws/articles of association. With respect to employees that are not statutory directors and officers usually it is approved by board of directors or authorized officers or executives. Stock option plans and stock grant plans must be approved at the general meeting. Phantom Stock plan is usually approved by the board of directors.

Typically, the general meeting also decides the aggregate amount of compensation for administrators and executive officers and the board of directors allocates payments individually.

Compensation must be decided annually. If compensation paid to directors and officers exceeds the amount approved by the shareholders at a shareholders’ meeting, the company may hold to account the directors and officers who authorised payment to be made in amounts that exceeded the limit set.

Japan Small Flag Japan

There are no guidelines applicable to the operation of incentive plans.

Norway Small Flag Norway

The Norwegian Corporate Governance Board (“NUES”) issues the recommendation on corporate governance for companies listed in Norway. The latest Norwegian Code of Practice for Corporate Governance was published 17 October 2018. Article 12 regulates remuneration of executive personnel. NUES articles 12 provides recommendation on how the company’s guidelines for the remuneration of executive personnel should be set. If said recommendation is not complied with, please note that the company, as per section 7 of the Oslo Stock Exchange continuing obligations, must provide a report on the company’s corporate governance in the directors’ report or in a document that is referred to in the directors’ report. The report must cover every section of the NUES recommendation. If the company does not fully comply with the recommendation, the company must provide an explanation of the reason for the deviation and what alternative solution it has selected.

NUES article 12 states the following:

“The board of directors is required by law (i.e. the Norwegian Public Limited Companies Act, section 6-16 a) to prepare guidelines for the remuneration of the executive personnel. These guidelines are communicated to the annual general meeting. The board of director’s statement on the remuneration of executive personnel should be a separate appendix to the agenda for the general meeting. It should also be clear which aspects of the guidelines are advisory and which, if any, are binding. The general meeting should vote separately on each of these aspects of the guidelines.

The guidelines for the remuneration of the executive personnel should set out the main principles applied in determining the salary and other remuneration of the executive personnel. The guidelines should help to ensure convergence of the financial interests of the executive personnel and the shareholders.

Performance-related remuneration of the executive personnel in the form of share options, bonus programmes or the like should be linked to value creation for shareholders or the company's earnings performance over time. Such arrangements, including share option arrangements, should incentivise performance and be based on quantifiable factors over which the employee in question can have influence. Performance-related remuneration should be subject to an absolute limit”.

The English translation may be found here:

United Kingdom Small Flag United Kingdom

In the UK, the corporate governance regime is a mix of statutory rules, codes and investor guidelines and the extent to which it applies will depend on the size of the issuer company, where it is incorporated and whether or not it is listed.

Companies with shares admitted to the Official List are subject to the UK Corporate Governance Code which sets out principles of good corporate governance in relation to remuneration. Companies with securities traded on other markets have other corporate governance codes and a special code is also being developed for larger private companies. Institutional investor protection committees (such as the Investment Association: also publish guidelines on good corporate governance.

Germany Small Flag Germany

The German Corporate Governant Codex (GCGC) applies to share (option) plans. According to the GCGC, subsequent changes to the performance targets for share option plans shall be excluded (No. 4.2.3 (2) sen. 8 GCGC). The structure of a share option plan is to be announced in advance. It is recommended that the share options are based on demanding and relevant comparison parameters (No. 4.2.3 (2) sen. 7 GCGC). The Corporate Governance Report shall contain specific information on share options and similar securities-based incentive systems of the company, insofar as this information has not been provided in the annual financial statements, consolidated financial statements or remuneration report (No. 7.1.3 GCGC).

France Small Flag France

French bodies such as the Tax administration, the Financial Markets Authority (“AMF”), the French Institute of Administrators (“IFA”) or the national association of joint-stock companies (“ANSA”) issued guidelines on these specific matters, which are regularly updated.

In addition, for companies whose securities are admitted to trading on a regulated market, the AFEP-MEDEF Code provides for some recommendations that applies to incentive plans offered to company officers.

Spain Small Flag Spain

Listed companies need to comply with the recommendations of the Good Corporate Governance Code for Listed Companies approved by the CNMV, including those specifically referring to incentive plans. Compliance with the code is not compulsory although is a market standard. Non-compliance must be disclosed to the market through the annual corporate governance report.

Colombia Small Flag Colombia

There are no specific corporate governance guidelines that apply to the operation of incentive plans. They vary from one company to another depending on each company´s policies.

Portugal Small Flag Portugal

As general statutory rule, the approval of remuneration of members of the corporate bodies of a company is entrusted to the general meeting or to a corporate remuneration committee designated for the purpose (and enjoying of independence from the management bodies). Certain adjustments to this principle may exist depending on the corporate governance structure adopted (for instance, in dual public companies inspired by the German model, competence is transferred from the general meeting to the supervisory board).

As mentioned (supra, n. 5), the Companies Code allows the remuneration of executive directors to partially consist of a percentage (the maximum amount of which needs to be set out in the articles of association) of the company’s profits, whereas remuneration of directors with supervisory functions (i.e. members of the audit committee) must mandatorily only consist of a fixed sum (this solution is often recommended for all non-executive directors).

Public companies are subject to enhanced corporate governance requirements on approval of remuneration for members of the corporate bodies, in particular directors and executives. The latter remuneration should be structured in a way to allow alignment with the interests of stakeholders, to be based on performance valuation and not encourage excessive risk assumption.

In this context, there are various recommendations in relation to performance evaluation criteria, growth of company and value obtained to shareholders, adoption of a variable remuneration component payable on a deferred basis, remuneration caps, etc. Clawback and recoupment provisions may be considered, particularly in the context of executive directors agreements, although no express requirements exist on the matter (but without prejudice of any event of statutory provisions on directors liability vis-à-vis the company).

Italy Small Flag Italy

In Italy, there are no corporate governance guidelines regarding the allowance to employees of performance bonuses or the so-called corporate welfare.

With regard to stock options, instead, there are some governing regulations. Companies are required to finalise and approve specific Regulations providing the structure of their stock option plans in order to define the specific conditions thereof, such as, for example:

- the increase in capital to service the plan, or the conditions under which to meet the commitments made under the plan with securities already held;

- whether or not the options can be transferred;

- subordinate the exercise of the options to the achievement of certain performances (individual or company);

- the forecast of a maximum life period of the plan at the end of which vested and unexercised options expire;

- limitation to the exercise of options in the event of termination of employment.

While maintaining its essential structure, a company, hence, can design a stock option plan so as to match its needs.
CONSOB has underlined that remuneration plans based on financial instruments are characterized by a complex method of implementation, involving:

(i) the approval of the compensation system and its characteristic elements (also referred to as the "attribution" of compensation);

(ii) the approval of the arrangements for determining the availability and the allocation of the relevant financial instruments, e.g. capital increase, or purchase on the market ( "funding" of instruments).

The process of allocating the awards principally includes:

(i) a resolution of the Board of Directors approving the plan and all the characteristics of the remuneration;

(ii) subsequent resolution of the Shareholders’ Meeting approving the compensation plans previously established by the Board of Directors.

Turkey Small Flag Turkey

There are no corporate governance guidelines that apply specifically to operation of incentive plans. However, Communiqué on Corporate Governance no. (II-17.1) of CMB, regulating corporate governance of publicly traded companies and listed institutions, brings high standards for shareholders and employees are shareholders in these companies. This communiqué actually enables these companies and institutions provide equity compensation plans and incentives.

Updated: May 30, 2019