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The rescue plan presented Monday by the Danish government to ensure financial stability (see article) implies an agreement between the State and the banks to display modesty during the two year period of the programme to ensure consolidation of the sector.



Executive pay levels have increased exponentially within recent years and incitement structures and share option schemes are pointed at immediate gains and do not punish irresponsible behaviour and excessive risk taking. This has had a damaging effect on financial stability, and moderating the use of these pracitices is therefore important to re-etstablish confidence and stability in financial markets.



Discussions of restricting executive pay schemes have also reached the European agenda. At their meeting in Luxembourg on Tuesday, the ECOFIN Council agreed that a review of the existing provisions could be necessary and that national authorities have a role to play in helping to define an appropriate regulatory framework.



The objectives mentioned in the conclusions of the meeting was that

• The governance framework should be conducive to an effective control by shareholders and the governing bodies of the company, including on remuneration policy. In line with the Commission's 2004 Recommendation, which recommends measures such as publishing remuneration policy and devoting an item of the agenda of the annual general meeting, in order to involve shareholders and the governing bodies of the company in the decisions, the Council underlines that this is an area where improvement would be desirable and that it is ready if needed to undertake appropriate action.
  
• Performance should be properly and comprehensibly reflected in executives' pay, including leaving pay ("golden parachute"), which should be appropriately linked to the contribution of the executive to the company's success.
  
• Performance criteria should provide the right incentives. As recommended by the FSF with respect to the financial industry, compensation models should be aligned with long-term, firm wide profitability, and national authorities should work towards mitigating the risks arising from an incentive structure focusing on short-term profits. That issue will require further attention in the coming period, notably by taking into account the work undertaken by the FSF.
  
• Care should be taken to prevent potential conflicts of interest for executives conducting mergers and acquisitions, for example whilst they hold shares or stock-options of the offered

The intentions expressed by the Council addresses one of the key points that UNI-Finance has stressed for several years as contradictory to sound business principles and damaging to financial stability.



Whether the Council, at their meeting next week, agrees on common actions to address this problem is not clear, but the French presidency is in favour of a European solution to further restraining remuneration of bank executives.



More information on the Danish bail-out plan here



The press release communicating the Council conclusions can be found here or below