Supervisory Boards fail to explain remuneration policy. A missed opportunity?

Published as insight on 19 April 2011 - There is one important player missing from the current fierce debate about bonuses: the Supervisory Board member. After all, the Supervisory Board is responsible for the bonus policy. Is this a missed opportunity?

Anyone who fails to communicate clearly and transparently will gain a reputation they might not deserve and certainly do not want. Messages expressed without nuance or clear explanation start to take on their own lives. This is also true in the debate about management bonuses. If there is no clear communication and validation of why a bonus is what it is, the message is quickly perceived as dubious.

The main question is: who is the original owner of the communications about bonuses? Executive Boards do not communicate about their remunerations because this is the responsibility of the Supervisory Boards. This is fully in line with the way responsibilities are split between Executive and Supervisory Boards. The Supervisory Board members do not talk about the company’s strategy, the Executive Board members do not discuss their remuneration. However, Supervisory Boards are also failing to discuss the issue. They generally provide little or no insight into the considerations behind the remuneration of the Executive Board members. This seems to be a part of the general reluctance of Supervisory Boards when it comes to communicating transparently about their supervisory role.

Remuneration is discussed in the Annual Report, and the report from the Supervisory Board obviously mentions whether members of the Executive Board have realised their goals, together with the targets for bonuses. But clear explanations of the objectives being achieved and the ultimate bonuses are few and far between. Investors and the broader public want to know about the considerations taken into account and the factors that eventually played a role in the remuneration, especially bonuses.

So there is ample room for improvement. The bland remuneration section of the Annual Report, something everyone immediately checks, should be scrapped. The Supervisory Board’s remuneration committee should give a clear explanation and provide a clear context for the agreed bonuses.

There are obvious solutions in terms of communications that give a company the opportunity to provide more insight into the decision-making processes. This could be a press release with an explanation of certain decisions, or an interview with the remuneration committee in the Annual Report that provides additional information. Perhaps a blog post from the chairman of the Supervisory Board? Anything is better than the deafening silence that prevails at the moment.

The question is whether the debate about bonuses, which is raging again at the moment, would have been different if the bonuses had been launched into the public domain with explanations easily accessible for everyone. We think so. We believe that the silence from Supervisory Boards is a missed opportunity and that an explanation of the underlying considerations could have defused the potentially negative perception of how bonuses are allocated. So which Supervisory Board members have the courage to break through this barrier of non-communication and explain their policies?

José Tijssen and Edi Cohen

A shortened version of the text in this insight was published in the letters’ page of today’s Het Financieele Dagblad.