The "say on pay" programme would apply to around 10,000 publicly trading employers across EuropeReuters

The UK's largest companies will have to seek shareholder approval for pay policies if a proposal from the European Commission gets approved.

The EC, which is the executive body of the European Union (EU), wants to increase shareholder engagement and introduce a transparency initiative across the economic and political region.

The 'say on pay' programme would apply to around 10,000 publicly trading employers across Europe.

The EC claimed the move would contribute to the competitiveness and long-term sustainability of the companies.

"[The] proposals will encourage shareholders to engage more with the companies they invest in, and to take a longer-term perspective of their investment," said Michel Barnier, Internal Market and Services Commissioner.

"To do that, they need to have the rights to exercise proper control over management, including with a binding 'say on pay'."

"I also see it as a priority that company law offers European SMEs an efficient framework for their operations and growth. The European Single-Member Company will help entrepreneurs reduce costs and organise their activities abroad."

The organisation said the proposals would oblige companies to disclose "clear, comparable and comprehensive" information on their remuneration policies and how they were put into practice.

The Commission explained that there would be no binding cap on remuneration at EU level, but each company would have to put its remuneration policy to a binding shareholder vote.

A firm would, among other things, also need to explain how the pay policy contributes to the long-term interests and sustainability of the company.

The proposals are the latest potential pieces of legislation to come from the EC after introducing measures to cap bankers' bonuses after the financial crisis of 2007.

"Barnier's proposals would seem to have limited effect on quoted companies incorporated in the UK, who are already governed by the directors' remuneration regime brought in by the UK government last year," said Andrew Stanger, employment and benefits partner at law firm Mayer Brown International.

"Indeed, these proposals seem to have been based on that regime. It remains to be seen whether the detail of these proposals will require the UK rules to be tweaked, or whether they will need to apply to more companies, but in general I would expect these proposals would be welcomed by those subject to the UK regime to the extent that they level the playing field with their competitors."