5.13 Share-based Executive Incentive Programmes 2815.13 Share-based Executive Incentive Programmes....................................
Shares can form part of executive or employee incentive programmes. This raises
traditional company law questions and questions relating to corporate governance
(as well as questions of accounting and tax, which will not be discussed in this
book). These questions have already been discussed in Volume I. Some comments
can nevertheless be made.
Pre-emption rights. Beneficiaries of an incentive programme may be given a
right to subscribe for new shares.
The use of share-based incentives is constrained by existing shareholders’ pre-
emption rights.^733 Pre-emption rights may be waived by decision of the general
meeting. In that case, the administrative or management body must present the
general meeting “a written report indicating the reasons for restriction or with-
drawal of the right of pre-emption, and justifying the proposed issue price”.^734 The
general meeting may authorise another company body to decide on the share issue
and the withdrawal of pre-emption rights within certain limits.^735 In practice, this
is often done, and the board of a listed company will often be more or less auto-
matically authorised to decide on share-based executive and employee incentive
programmes.
Buy-back programmes, financial assistance. Beneficiaries of an incentive pro-
gramme can also be given a right to buy or receive existing shares. EU company
law makes it easier for the company to acquire shares that will be distributed to its
employees and advance funds to employees who want to buy its shares.^736
Synthetic options. Alternatively, the company can use synthetic options. From a
legal perspective, it is easier for the company to decide on synthetic options, be-
cause the use of synthetic options is not constrained by the legal capital regime to
the same extent.
Recipients of share-based incentives. As a rule, Community law does not limit
the recipients of share-based incentives. There may nevertheless be sector-specific
restrictions such as rules on the remuneration and integrity of statutory auditors
under the Directive on statutory audits (see Volume I). In Germany, share options
may not be granted to supervisory board members, because the supervisory board
is not a management organ.^737 The same principle was adopted by the Commission
in a non-binding April 2009 Recommendation^738 according to which remuneration
for non-executive or supervisory directors should not include share options.
(^733) Article 29(1) of Directive 77/91/EEC (Second Company Law Directive).
(^734) Article 29(3) of Directive 77/91/EEC (Second Company Law Directive).
(^735) Article 29(5) of Directive 77/91/EEC (Second Company Law Directive).
(^736) See Articles 19(3), 23(2) and 41(1) of Directive 77/91/EEC (Second Company Law Di-
rective).
(^737) § 192(2) AktG; BGH, judgment of 16.2.2004 - II ZR 316/02 (Mobilcom).
(^738) Commission Recommendation complementing Recommendations 2004/913/EC and
2005/162/EC as regards the regime for the remuneration of directors of listed compa-
nies, C(2009) 3177.