Page 120 - Albanian law on entrepreuners and companies - text with with commentary

1. Managing Directors’ salaries have been the centre of many corporate scandals in recent
years. The attitude of many managers to use their position for pay rises even when the
company is in financial trouble has been an often-debated issue and managers’ social
reputation has suffered in response. The majority of cases in question regarded the
management of JSC, above all those listed in the stock exchange. EU law-makers reacted with
Recommendation 2004/913/EC to this trend. The Recommendation is supposed to “foster an
appropriate regime for the remuneration of directors of listed companies”. In 2009 the
European Forum decided to issue a code of conduct on Executive Remuneration in
companies. They said: “The Forum, while acknowledging that the determination of the pay
structure and the levels should be left to companies and shareholders, advocates that certain
best practises should be respected. Examples of the best practices that the Forum lists in its
statement are:

 that the level of variable pay should be reasonable in relation to total pay level;
 that variable pay should be linked to factors that represent real growth of the
company and real creation of wealth for the company and its shareholders;
 that shares granted to executive directors under long-term incentive plans should
vest only after a period during which performance conditions are met;
 that severance pay for executive directors should be restricted to two years of
annual remuneration and should not be paid if the termination is for poor
performance.

2. The Forum furthermore considers that any rules should distinguish between executive
pay in listed companies in general and remuneration in the financial services sector due to the
potential high earning of non-board members in the latter.” 117
However, the scope of this topical debate is much larger than executive remuneration
and covers all company structures where management may gain notable autonomy from other
company organs which are supposed to supervise and control them. Above all where the
duties of Managing Directors have replaced the safeguard mechanisms connected to capital
maintenance regimes, the introduction of an adequate management remuneration system
linked to the performance of the company becomes an important additional corporate
governance instrument. Our Comments to Article 70 show, that the LLC model of the
Company Law has introduced such a change in Albania. It is therefore to be welcomed that
the Company Law has also introduced the essence of the EU recommendations for managers’
remuneration on LLC level.

3. The Recommendations do not aim at the establishment of standards for appropriate
salaries—this would be difficult to achieve for the huge variety of company contexts.
However, it introduces the participation of the General Meeting in the standard setting process
which, in JSCs, is provided by the Board of Directors or the Supervisory Board. In these
circumstances, the scheme of benefits granted to Managing Directors (remuneration or

117 See http://ec.europa.eu/internal_market/company/ecgforum/index_en.htm
119