On 5 November 2019, the President of Poland signed into law an amendment to the Act on Public Offerings and Conditions for Introduction of Financial Instruments into an Organised Trading System and on Public Companies. Most of the new regulations enter into force 14 days after publication of the amending act. It is intended to adjust Polish law to reflect the entry into force of the EU’s Prospectus Regulation (2017/1129) (which generally should have been done by July).
The amending act is of great importance for the market, as it also implements two directives and brings Polish law into compliance with them, while introducing a number of other changes and new obligations. One of them is the requirement for public companies to have a compensation policy.
Compensation policy in public companies
The new regulations will apply only to companies with their registered office in Poland which have at least one share admitted to trading on the regulated market. The mandatory compensation policy will apply to members of the management board and supervisory board. It will have to be adopted by the general meeting of shareholders, which will also be entirely responsible for the wording of the policy. This is because the compensation of the members of the company’s authorities is to be decided exclusively by the shareholders. This is no doubt designed to prevent members of the management board from paying one another large amounts out of the company coffers, such as discretionary bonuses or ad hoc awards. In support of the proposal, the Ministry of Finance claimed, “This should improve transparency in the activity of listed companies and also increase shareholders’ influence over the affairs of such companies.” Potential investors will also be able to examine the company’s compensation policy, as the amendment requires companies to publish on their website a report on compensation over at least the past 10 years. These reports will contain the personal details of the members of the company’s authorities as well as details concerning amounts of compensation awarded based on the individual’s family situation (additional benefits from the company under internal regulations), which raises concerns under data protection regulations.
Currently, the duty to maintain a compensation policy applies only to banks, investment fund companies, alternative investment fund managers, and certain investment firms. The expansion of this list to include public companies is thus a manifestation of protectionism and should further the realisation of the companies’ business strategies, and their long-term interests and stability. The regulations also require inclusion in the draft compensation policy of details concerning contracts between the company and members of the management board or supervisory board (or in the absence of contracts, information about the nature of the legal relationship between the company and these individuals). The supervisory board will in turn be required to prepare a yearly compensation report, providing a comprehensive review of executive compensation covering all benefits of whatever form in the preceding financial year.
Under Art. 36 of the amending act, the general meeting of the company must adopt a resolution on the compensation policy for members of the management board and supervisory board by 30 June 2020. Thus the deadline for adoption of a compensation policy was tied to the deadline for holding the regular (annual) general meeting (Art. 395 §1 of the Commercial Companies Code). This is a great convenience for shareholders, and companies will gain additional time to draft, consult and implement new compensation policies. Meanwhile, supervisory boards will be required to prepare their first compensation reports jointly for 2019 and 2020. But as the ministry asserted in the justification for the bill, “The general obligations imposed on these entities will be mitigated for small and medium-sized enterprises, in particular by allowing these companies to conduct a debate on the compensation report rather than having to adopt a resolution of the general meeting of shareholders.”
The new regulations require public companies to adopt a compensation policy, or disclose their existing compensation policies, which is clearly advantageous for shareholders. It is interesting to see the direction the practice is taking in this area, as previously compensation policies were not disclosed, although the Code of Best Practice for WSE Listed Companies has recommended for some time that companies have a compensation policy.
The obligation introduced by the amendment is new for companies, but it should be borne in mind that it results from the need to implement EU law and adjust the Polish regulations, and the member states have little leeway in implementation. The changes will consolidate the regulations and should lead to increased protection and transparency on the regulated market, and thus are important changes for the market. Companies should promptly begin preparing for implementation of new policies and procedures, as the amending act will enter into force 14 days after publication.
Radosław Kobrzyński, M&A and Corporate practice, Wardyński & Partners