The Evolution of Incentive-based Pay Based on the Implementation of Directive 2017/828/EU of 17th of May 2017: An Analysis of the Rules and Economic Considerations of Incentive-based Pay

Jeppe Stensbæk-Jensen & Emil Knudsen Rytz

Student thesis: Master thesis


The aim of this thesis is to analyze the impact of directive 2017/828 of 17thof May 2017 and how it affects the Danish regulation of incentive-based pay in publicly listed companies, where the regulation of incentive-based pay is set forth in the Danish Company Act. Further, the thesis will analyze the economic theories behind incentive-based pay and lastly what companies should look into when incentive-based pay is carried out.
The analysis of this thesis starts out with analyzing the regulation that is still in effect until the next annual general meeting as this is not until 2020. In accordance with the old legislation shareholders had a right to vote on general guidelines for incentive-based pay. Now the directive has implemented the shareholder’s right to vote on a policy, therefore the thesis looks into how this implemented into Danish regulation and in accordance with the directive 2017/828. Furthermore, there are recommendations in soft law and other regulation which is also analyzed and are found to be very much in accordance with the new legislation. The thesis reaches the legal conclusion that the new legislation grants the shareholders an easier way of getting insight into the incentive-based pay and thereby grants shareholders the possibility of more active ownership. The firms to some extent already follow he recommendations set forth in soft law and thereby adhere by the new rules now set forth in the Danish Company act.
In the economic part of the analysis of the thesis we look into how the principal-agent problem can be minimized by utilizing incentive-based pay. It is shown that effectively balancing the incentive pay in regard to risk and keeping general theories about the PA-theory in mind it is possible to minimize the principal-agent problem. In the last part of the thesis we look into how incentive based-pay is used in practice and how the economic and judicial mindset should be reflected into this. The thesis shows that a lot of the thing’s companies have to observe while they compose incentive-based pay contracts is in correspondence with economic and judicial strains of thought.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2019
Number of pages112
SupervisorsPeer Schaumburg-Müller & Caspar Rose