The credit crunch is no longer breaking news, but the headlines have not lost their force and executives at many of the world's top companies continue to feel pressure. The recession is likely to overshadow Europe's economies for another nine months, public opprobrium remains high and governmental interference looms.

Scrutiny of executive remuneration packages has never been more intense. From the G20 and its endorsement of the Financial Stability Forum's principles for "sound compensation practices" to the worker who fears redundancy, everyone has an opinion.

As is often the case with employment-linked issues, European-level developments are many. One recent recommendation targets the listed company directors' remuneration, while another aims at remuneration in the financial services sector.

The European Corporate Governance Forum issued best practices for directors' pay in March this year. The Council of the European Union's Conclusions on Executive Pay report questions the adequacy of performance conditions and the role of shareholders in controlling remuneration. It sets 'high-level objectives' to encourage good practices and promote voluntary self-regulation.

And, of course, many countries are pursuing national initiatives aimed at reigning in stratospheric executive pay packages and linking remuneration to both individual and company performance.

Germany is no exception. A year of heated discussions culminated in the Bundestag's adoption of a new law on the remuneration of board members in public limited companies no more than a week ago. This is despite that most companies complied voluntarily with the German Corporate Governance Code. Introducing legislation arguably smacks of vote-chasing on the Government's part.

The new law provides for slightly more precise rules to set executive directors' remuneration (including criteria to help assess what is an appropriate remuneration package) and for them to be given incentive in accordance with their company's long-term performance. Presumably it is hoped that this will help quell public concern over apparent rewards for failure.

The new law also focuses attention on the importance of the supervisory board, the existence of which is compulsory for German public limited companies. The entire supervisory board, rather than a remuneration sub-committee, must decide on directors' service agreements and their remuneration and must be mindful of its obligation to adjust board remuneration if the company suffers economic difficulties. The presence of employee and union representatives on the board can be expected to result in significant practical difficulties (not least delay) when the supervisory board comes together to discuss remuneration.

Delay may also ensue from the fact that individual supervisory board members will take their responsibilities even more seriously than in the past, given that they will have personal liability for portions of remuneration that exceed an 'appropriate level'. This personal liability is likely to make employee representatives even more risk averse and in favour of saying 'no' to everything.

Other measures to be introduced include the extension of the minimum vesting period for share option schemes from two to four years and for statutory disclosure of board remuneration to include the cash value of all obligations in relation to retiring board members.

The new law is likely to result in a substantial portion of remuneration being effectively set in stone while the majority of, if not all, bonus payments will be deferred and dependent upon long-term performance. Most probably, we will see lower remuneration levels overall. Share option schemes are likely to become thinner on the ground as companies make more use of share purchase programmes, phantom stock arrangements and long-term bonus schemes. Company pensions, too, will become less important as insurance-based pension arrangements and allowances for private pension arrangements assume greater significance.

Finally, a question mark hangs over the future competitiveness of the German market. The new law may prevent companies from hiring the best candidates if the top talent seek challenges elsewhere.

Klaus-Stefan Hohenstatt is head of Freshfields Bruckhaus Deringer's global employment, pensions and benefits practice group.