Compensation and Benefits in Belgium: Limiting the Use of Golden Parachutes

This article outlines the state of affairs on the limitations that many politicians announced in the wake of the financial crisis on the use golden parachutes.

Golden parachutes are special protection measures given to top managers in the form of substantial additional dismissal premiums foreseen in the employment agreement (or management agreements). Although many politicians announced strict prohibitions on the use of such golden parachutes in the wake of the financial crisis, Belgian parliament still has not passed any form of new legislation on the subject and it does not look like it is likely to do so in the near future.

In the absence of any new legislation on the subject, existing golden parachutes remain valid and enforceable. Agreeing to new golden parachutes also remains possible although some exceptions might apply. Earlier this year, a new Corporate Governance Code for listed companies was presented. The new code is a revision of the 2004 code commonly known as the Code Lippens. One of the new principles of the code is that every new contract with top managers should include language on severance pay.

The code stipulates that top managers (the CEO or executive management members) should specify that severance pay awarded in the event of early termination should not exceed twelve months’ (basic and variable) remuneration. These twelve months may be raised to eighteen months upon recommendation by the remuneration committee. In this case the contract should specify when such higher severance pay will be due and the higher severance pay should be justified in the remuneration report which is published in the annual report. The code moreover stipulates that the contract should specify that the severance pay should neither exceed twelve months’ basic remuneration nor take account of variable remuneration when the departing top manager did not meet the performance criteria referred to in the contract.

Note that the Belgian Corporate Governance Code is not of mandatory application. It provides guidelines with which listed companies have to ‘comply or explain’. The impact of the code is therefore rather limited. To underscore the rather symbolic nature of these provisions, it can be noted that the code cannot limit the protection offered by Belgian employment law which can (easily) surpass the limitations set forth by the code. As usual, careful drafting of the employment (or management) agreement is the main message.