The New Shareholder Rights Directive 2017/828/EU: Should Shareholders Say on Pay be Binding or Advisory?

Jesper Bertelsen & Louise Pommer Laustrup

Student thesis: Master thesis


This thesis addresses the new Shareholder Rights Directive 2017/828/EU, and is set to determine whether the right to vote on the remuneration policy pursuant to article 9a, should be binding or advisory. By applying a legal and economic analysis, this thesis will result in a welfare analysis that will conclude, whether the binding or the advisory vote, will prove to be most efficient to implement in Danish Company Law. The new Shareholder Rights Directive amends the initial Shareholder Rights Directive 2007/36/EF, in a number of areas. The key area regarding this thesis is art. 9a, which entails that Members States shall ensure that shareholders is given the right to vote on a remuneration policy that covers both the management, and the Board of Directors pay schemes. According to the current Danish Companies Act, shareholders already have the right to cast a binding vote, as regards variable pay schemes to both the management, and the Board, cf. § 139. The legal part of this thesis determines, if the balance of competence is affected, and which option that has the smallest effect on the competence between the Board, and the General Assembly in Danish listed companies. The advisory vote was found to correlate best with the Danish corporate governance model, and is therefore recommended, from a legal perspective. Secondly, it has been determined whether the binding or advisory vote will provide the best incentives from a game theoretical perspective, for the shareholders and management, respectively. To promote long term management decisions, and to stimulate active ownership, the binding vote proved to be the superior option. This conclusion was reached by deriving the Subgame Perfect Nash Equilibrium of four different games that represented both a minority, and a majority shareholder, assuming that the vote on the remuneration policy was either binding or advisory. By comparing the equilibria outcomes of the games, the efficiency analysis proved that the state where the vote was binding, and the management faced a majority shareholder proved to be efficient, from a welfare perspective. As the opposite was found in the legal conclusion, the various implications were discussed, as well as the credibility of the game theoretical analysis. The conclusion was, however, that the binding vote would be optimal to implement, regarding all aspects of the analysis. This would entail an amendment of § 139 in the Danish Companies Act

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2018
Number of pages149
SupervisorsSøren Friis Hansen & Caspar Rose