One of the objectives of publishing a remuneration report is that increased transparency in the remuneration of the directors facilitates active ownership by the shareholders in relation to the company’s remuneration policy. In other words, the remuneration report shall give such thorough insight into the remuneration of directors that the shareholders can verify the company's compliance with the remuneration policy. This objective is important to remember when preparing the first remuneration report under the new rules of the Danish Companies Act. The remuneration report should not just contain various tables with numbers but also a report on how the remuneration of directors complies with the remuneration policy and how the remuneration contributes to the long-term performance of the company. Among other things, the remuneration report must describe how the performance criteria for payment of variable remuneration have been applied. It may therefore be advantageous to read the remuneration policy thoroughly before you start preparing the remuneration report.
Q: Does the remuneration report have to be in a certain format?
A: No, there is no format requirement for the remuneration report, but it might be useful to consider preparing the remuneration report as a mixture of descriptive text and tables. According to the European Commission’s guidelines, the remuneration report must contain clear, understandable, exhaustive, consistent and comparable information about the remuneration paid to each director. Hence, the first remuneration report under the new rules will create expectations for future reporting. We therefore recommend that, when preparing the remuneration report, you consider both consistency and the possibility of comparing it with future remuneration reports.
Q: In which language should the remuneration report be prepared?
A: There is no formal requirement about the language in the remuneration report, but it would be obvious to choose the same language as that used in the annual report.
Q: Is it a requirement that the remuneration report contains a statement by the board of directors?
A: No, there is no such requirement. The board of directors is responsible for preparing and publishing the remuneration report, whether or not they insert any statement. According to the Danish Companies Act, the company's auditor is required to ensure that the disclosure requirements are satisfied in the remuneration report. Any failure to satisfy the requirements must be mentioned in the auditor's opinion in the annual report, or in a separate statement to the general meeting if the annual report is not presented for approval at the same general meeting as the remuneration report. The Danish Companies Act does not call for any audit of the remuneration report, nor is the auditor required to prepare a separate statement to the board of directors.
Q: Is it necessary to include in the remuneration report any ordinary employee benefits that are not mentioned in the remuneration policy?
A: Yes, the remuneration report must include all types of remuneration, including, for example, newspaper subscriptions, even if they do not appear specifically from the remuneration policy.
Q: How should remuneration paid to employee-elected board members be described in the remuneration report?
A: It is only necessary to mention the remuneration paid to the employee-elected board members for their work as board members. Their ordinary salary, bonus, pension contributions, etc. paid to them in relation to their ordinary employment should not be mentioned.
Q: How should the report describe the achievement of performance criteria?
A: The remuneration report must describe how the performance criteria have been applied. Also in this respect it is important to address the requirements in the remuneration policy so as to ensure that the report describes clearly and understandably how the actual payment of remuneration to the directors is connected to the achievement of the chosen performance criteria.
If the remuneration policy mentions various financial and non-financial criteria for achievement of a cash bonus, the remuneration report should describe i) the criteria applied by the board of directors, ii) to what extent those criteria have been achieved, and iii) the resulting amount of bonus paid to each director. There is no obligation to publish the actual results in such details that it may harm the company, e.g. in relation to competing businesses.
If the various performance criteria are weighted differently, such differences must also appear from the remuneration report, and if the remuneration policy stipulates a maximum level for variable remuneration, it should be described in the remuneration report whether that maximum has been reached.
Q: How detailed should the information about share-based remuneration be?
A: According to the Danish Companies Act, the remuneration report must state the number of shares, the share options granted or offered, and the main conditions for exercise of the rights including the exercise price and date and any change thereof. Most companies use revolving share-based remuneration schemes, for example granting options over a three-year period.
Especially in connection with the reporting of share-based remuneration, it may be an advantage to use tables in the remuneration report. Tables may give the readers a better view of the grant, vesting, exercise and terms of the options. It is also important to ensure that the remuneration is correctly reported on an accruals basis to ensure that the amount is not included in the total remuneration for multiple financial years.
Q: Does the first remuneration report have to contain comparative information for the last five financial years?
A: No, the guidelines of the Danish Business Authority stipulate that when preparing the first remuneration report, it will suffice with information for the latest financial year. If the company has previously prepared a remuneration report in accordance with the recommendations on corporate governance, it seems obvious to include information for five years (or for the period previously included) already in the first remuneration report. In that case you should consider including an explanation in the remuneration report, because the historical remuneration reported may not necessarily comply with the approved remuneration policy; five years back, there may have been other guidelines on directors' remuneration than those approved by the shareholders at the 2020 annual general meeting. This should be emphasized in the remuneration report.
Q: Do the rules of the Danish Companies Act on remuneration reporting replace the former disclosure requirements for financial institutions?
A: No. Financial institutions must comply with the disclosure requirements set out in the Danish Companies Act as well as in the financial legislation. This double legal basis also applies to the contents of the remuneration policies of financial institutions. However, in case of any discrepancy between the two sets of rules, and if the financial legislation introduces more stringent requirements, the financial legislation will prevail over the Danish Companies Act based on a lex specialis principle.
Q: Is there any information that must not be given in the remuneration report?
A: Yes, the remuneration report must not include personal data concerning e.g. political or religious beliefs, trade union membership or health. In addition, information about each director, including particularly information about each director's family situation or other purely private affairs, must be limited to what is necessary to meet the remuneration report requirements in the Danish Companies Act.
If part of the remuneration paid by the company is contingent on the director's family situation, the remuneration report may only contain information about the amount of the remuneration and not about the basis on which it was granted. The remuneration in question could instead, according to the guidelines issued by the Danish Business Authority, be referred to as e.g. a "special allowance".
The remuneration report must be published on the company’s website as soon as possible after being considered by the general meeting and must remain accessible to the public (free of charge) for a period of 10 years. If the company wants to make the report accessible for more than 10 years, all personal data must be deleted from the report. According to the guidelines of the Danish Business Authority, this means that, after expiry of the 10-year period, a new version of the report will have to be prepared in which it is no longer possible to see which of the former directors received which remuneration. It is therefore also relevant that the remuneration report (or parts of it) should not be incorporated into the annual report, because the latter is to be submitted to the Danish Business Authority where it will be accessible to the public in perpetuity. Instead, the company can insert in the annual report a link to the company's website where the remuneration report is available.
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Should you have any questions regarding the preparation of the remuneration report, for example what the company must and may report, please do not hesitate to contact our experts in capital market law, company law, employment law and personal data. We work closely together in this field and are therefore able to provide complete advice on the remuneration reporting requirements.