CMS Expert Guide to ESG Compensation in Slovakia

  1.  What are the main regulations in your jurisdiction governing ESG criteria/obligations in executive remuneration?
  2.  What sectors/industries do these regulations cover?
  3. Which ESG-relevant pillars are covered by these regulations?
  4. What are the obligations for companies/directors/top management covered by these regulations?
  5. Is there a distinction between directors and top management employees in terms of ESG requirements?
  6. What are ESG-relevant requirements governing ESG obligations for non-executive employees’ remuneration? 
  7. What are ESG-relevant requirements in terms of addressing the gap between executive and workforce remuneration and/or executive gender pay gap?
  8. Please describe the main features of the prescribed remuneration schemes (deferred payouts, timelines, thresholds, ceilings etc.)
  9. Are there rules or official guidelines regarding ESG performance measures and targets (KPIs) for directors'/top management's remuneration?
  10. What are the market practices regarding ESG criteria for executive remuneration?
  11. Did the market practices derive from self-regulation? For example: soft law or voluntary adoption standards issued by shareholder or governance associations, white books or GRI standards, etc.
  12. Are there different practices in different sectors and industries? For example: banking, energy, telecoms, insurance, listed companies, etc.
  13. What are the most common ESG KPIs you observe used by companies when defining ESG KPIs?
  14. Are the ESG KPIs included in the short-term remuneration, long-term remuneration or both?
  15. How large is the share of ESG-related variable remuneration in the variable remuneration as a whole?
  16. What are the ESG-related disclosure requirements, including reports to the regulator, in annual reports, etc.?
  17. What is the effect of these regulations on existing agreements? Do they overrule employment/civil law agreements when entering in force? How is this conflict solved in your jurisdiction?
  18. Is there a regulatory body in your jurisdiction overseeing ESG matters? If so, what measures can be taken by the authority?
  19. Are there prospects of any future regulations being adopted in your jurisdiction in this regard? For example: soft law regulations, private self-regulation initiatives, informal discussions on the transposition of EU Corporate Sustainability Reporting Directive, etc.

1. What are the main regulations in your jurisdiction governing ESG criteria/obligations in executive remuneration?

Sections 201a-201e of the Slovak Commercial Code are based on EU Directive 2017/828 and establish an obligation to publish the remuneration rules and an obligation for the general meeting to decide on the approval of the remuneration rules for the members of the management board, supervisory board, and general manager (CEO) of public stock companies.

Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainabilityrelated disclosures in the financial services sector (Sustainable Finance Disclosure Regulation, the “SFDR”), financial market participants and financial advisors must include in their remuneration policies information on how these (note: remuneration) policies are consistent with the integration of sustainability risks and publish this information on their websites.

Sections 20 and 20a of the Slovak Accounting Act are based on EU Directive 2014/95 and set obligations for companies designated as public interest entities - EU-listed public limited companies and financial institutions. Public interest entities have additional reporting obligations in the areas of environment, social affairs and employment, information on compliance with human rights and the fight against corruption and bribery. Additionally, companies meeting at least 2 of the following conditions: 1) total  assets exceed EUR 20,000,000, 2) net turnover exceeds EUR 40,000,000, and 3) the average number of employees exceeds 250 must provide a description of the diversity policy they apply in their administrative, management and supervisory bodies, in particular with regard to the age, gender, education and professional experience of the members of these bodies, the objectives of this policy, the way it is implemented and the results achieved in the reporting period.

As a local feature of ESG in remuneration we can mention:

Sections 13 and 44 of the Slovak Labour Code, which state that the employer cannot impose an obligation on the employee to keep his/hers working conditions confidential, including salary conditions and that any provision in the employment contract imposing such an obligation is void.

Section 62 of the Employment Services Act, which gives employers an obligation to indicate the amount of the basic salary when posting a job offer.

2. What sectors/industries do these regulations cover?

  • Sections 201a-201e of the Slovak Commercial Code cover all public stock companies.
  • EU Regulation 2019/2088 concerns the financial industry, for instance AIFMs, companies managing qualified venture capital funds or qualified social entrepreneurship funds etc.
  • Sections 20 and 20a of the Slovak Accounting Act cover public stock companies and financial institutions with over 500 employees and additionally total assets exceeding EUR 20,000,000 and net turnover exceeding EUR 40,000,000.
  • Sections 13 and 44 of the Slovak Labour Code and Section 62 of the Employment Services Act concern all employers.

3. Which ESG-relevant pillars are covered by these regulations?

  • Sections 201a-201e of the Slovak Commercial Code do not differentiate between "E", "S" and "G" criteria.
  • The EU "Disclosure" Regulation 2019/2088 states in its Art. 5 that financial market participants and financial advisors are required to indicate, in the context of their remuneration policy, to what extent it is consistent with the inclusion of sustainability risks and publish this information on their websites. It does not explicitly distinguish between "E", "S" and "G".
  • Sections 20 and 20a of the Slovak Accounting Act focus on "sustainability" and “diversity”, so the focus is on "E" and "S".
  • Sections 13 and 44 of the Slovak Labour Code and Section 62 of the Employment Services Act focus on “S”.

4. What are the obligations for companies/directors/top management covered by these regulations?

See above. Here is a summary:

  • Reporting obligations
  • Managing ESG risks in remuneration policies
  • Designing remuneration policies including ESG components

5. Is there a distinction between directors and top management employees in terms of ESG requirements?

In general, directors can be held liable if they fail to cover ESG-related risks for the company (as part of their general director's duty). Most of the provisions regarding sustainable remuneration relate to directors. In general, liability of directors for performance of their duties according to the Slovak Commercial Code differs from liability of top management employees whose relationships towards the company are regulated by the Slovak Labour Code.

6. What are ESG-relevant requirements governing ESG obligations for non-executive employees’ remuneration? 

N/A

7. What are ESG-relevant requirements in terms of addressing the gap between executive and workforce remuneration and/or executive gender pay gap?

The general principle prohibiting discrimination against employees in employment relationships, which is stipulated by the Slovak Labour Code, applies.

8. Please describe the main features of the prescribed remuneration schemes (deferred payouts, timelines, thresholds, ceilings etc.)

N/A

9. Are there rules or official guidelines regarding ESG performance measures and targets (KPIs) for directors'/top management's remuneration?

N/A

10. What are the market practices regarding ESG criteria for executive remuneration?

At this stage, it is difficult to comment on market practice as there are still only few companies providing the relevant non-financial reporting that sufficiently describes the impact of ESG rules on their remuneration policies. 

11. Did the market practices derive from self-regulation? For example: soft law or voluntary adoption standards issued by shareholder or governance associations, white books or GRI standards, etc.

At this stage, it is difficult to comment on market practice as there are still only few companies providing the relevant non-financial reporting that sufficiently describes the impact of ESG rules on their remuneration policies.

12. Are there different practices in different sectors and industries? For example: banking, energy, telecoms, insurance, listed companies, etc.

At this stage, it is difficult to comment on market practice as there are still only few companies providing the relevant non-financial reporting that sufficiently describes the impact of ESG rules on their remuneration policies. 

13. What are the most common ESG KPIs you observe used by companies when defining ESG KPIs?

Environment

  • Reduction of CO2 emissions
  • Reduction of the CO2 intensity of the company's portfolio
  • Use of renewable/green energy
  • Improvement of energy efficiency
  • Increase of the share of sustainable products
  • Use of sustainable materials in production

Social

  • Employee satisfaction
  • Workplace safety and health
  • Employee turnover
  • Training and further education

Governance

  • Compliance
  • Prevention of corruption and bribery
  • Risk management
  • Reporting and communication

14. Are the ESG KPIs included in the short-term remuneration, long-term remuneration or both?

At this stage, there is no clear trend/there are not enough data to assess. Each company can set ESG KPIs differently.

There are no legal rules regarding the share of ESG-related variable remuneration.

  • Sections 201a-201e of the Slovak Commercial Code: To publish the remuneration rules.
  • Sections 20 and 20a of the Slovak Accounting Act: To publish (include) the information in the annual report.
  • EU "Disclosure" Regulation 2019/2088: Art. 5: states that financial market participants and financial advisors are required to indicate, in the context of their remuneration policy, to what extent it is consistent with the inclusion of sustainability risks and publish this information on their websites.

17. What is the effect of these regulations on existing agreements? Do they overrule employment/civil law agreements when entering in force? How is this conflict solved in your jurisdiction?

Sections 13 and 44 of the Slovak Labour Code overrule existing agreements.

18. Is there a regulatory body in your jurisdiction overseeing ESG matters? If so, what measures can be taken by the authority?

  • Sections 201a-201e of the Slovak Commercial Code: No direct supervision by authorities.
  • EU "Disclosure" Regulation 2019/2088: Slovak National Bank monitors compliance with the Regulation.
  • Sections 20 and 20a of the Slovak Accounting Act: No direct monitoring by authorities. In general, tax authorities monitor compliance with the Slovak Accounting Act.

19. Are there prospects of any future regulations being adopted in your jurisdiction in this regard? For example: soft law regulations, private self-regulation initiatives, informal discussions on the transposition of EU Corporate Sustainability Reporting Directive, etc.

Currently, we can see several informal discussions (on several platforms) on the transposition of the EU Corporate Sustainability Reporting Directive (the “CSRD”) as well as the expected Corporate Sustainability Due Diligence Directive.