Executive pay disclosure improving in Western Europe

Under pressure from shareholders and regulators, Western European corporations are steadily providing more information on the compensation of their senior executives, with beneficial implications for investors, Moody’s Investors Service said in a new Special Comment.

According to the rating agency, the availability and quality of information on executive compensation form a key element of its analysis of corporate governance, which is an important factor in assigning a firm’s credit rating.

“The more we know about how its top executives are paid, the more insight we have into a company’s strategy, priorities and investment horizon,” said Christian Plath, Assistant Vice President and author of the report.

Europe has traditionally required less detailed information on executive pay than the US and Canada and the quality of pay disclosure in Western Europe continues to vary significantly, impeding the ability of investors and analysts to interpret potential implications of pay for bondholders.

“However, regulatory reforms, at the European Commission and country levels, are closing the disclosure gaps. These reforms reflect the significant increase in the intensity of investor, media, regulatory and political scrutiny of pay in recent years in Western Europe, as in the US,” Plath explained.

Investors are thus benefiting from these positive trends in Western Europe towards better disclosure of executive pay. Moody’s Special Comment — titled “Western European Executive Pay Disclosure Trends Bode Well For Better Credit Analysis” — explains why pay analysis matters for investors, outlines how disclosure practices differ across Western Europe and describes trends towards improved disclosure.

Some key recent developments highlighted by Moody’s in its report are:

— “Say on Pay” — in which shareholders have an advisory or binding vote on the company’s executive pay report — has spread to the UK, Norway, Sweden and the Netherlands and will be mandated in France starting in 2009.

— Germany now requires listed companies to legally disclose individual executive pay awards.

— Prodded by European Commission recommendations, Italy now requires its companies to provide more executive pay disclosure, and Swedish companies have been providing more detail on bonus and long-term incentive plans.