Belgium: Limits On So-Called "Golden Parachutes" In The New Corporate Governance Code

Originally Published 13^th March 2009

Yesterday the new Corporate Governance Code for listed companies was presented. The new Code is a revision of the so-called 'Code Lippens' which dates from 2004.

One of the new stipulations of the Code provides that every contractual arrangement made as of 1 July 2009 with the CEO or the executive management members, should specify that severance pay awarded in the event of early termination should not exceed 12 months' basic and variable remuneration. This severance pay may be raised to a maximum of 18 months' basic and variable remuneration, further to a recommendation by the remuneration committee. In this case the contract should specify when such higher severance pay will be due and the higher severance pay should be justified in the remuneration report which is published in the annual report. Examples of when a higher severance pay could be awarded according to the Code are, departure because of a merger or because of a change of control or a change in strategy, but also the fact that the manager already had acquired extensive seniority in his/her previous position, or because it was necessary for obtaining the manager's agreement.

On the other hand, the Code stipulates that the contractual agreement should specify that the severance pay should neither exceed 12 months' basic remuneration, nor take account of variable remuneration when the departing CEO or executive manager did not meet the performance criteria referred to in the contract.

The new Code still works on the principle 'comply or explain'. This means that companies can depart from the stipulations of the Code; yet when they do so they will have to provide a considered explanation. It is the Banking, Finance and Insurance Commission (CBFA) that monitors this.

The stipulations of the Code cannot derogate from the law. With regard to the CEO or the members of the executive management that have a white-collar status, the protection afforded by labour law continues to be applicable. The new Code is partially inspired by the draft act on golden parachutes which aimed at providing a stricter regime (see our Newsflash of 21 November 2008). The Council of State gave a negative opinion on this proposal. It is unclear if the government will do something about this draft.

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