Board Remuneration Policy Review

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Remuneration payments made to executive and non-executive board members, company directors and chief executive officers (CEO) have increasingly been on the rise in Germany over recent decades. The average management board remuneration payments of the thirty largest publicly listed companies on the DAX more than doubled from €1,2 million in 2001 to €3,0 million in 2012.1 Average CEO remunerations are even higher and have also increased rapidly, from €3,7 million in 2007, to €5,1 million in 2015.2 This, along with other recent developments related to key executives continuing to attain exorbitant levels of remuneration during periods of poor company performance, has led to widespread debate on how best to deal with concerns over how remuneration at the top level is set, managed and regulated.3

Download full pdf: Board Remuneration Policy

Board remuneration regulation is essentially a two-stage issue. Firstly, there should be transparency concerning the remuneration packages of executive and non-executive board member and directors. And secondly, shareholders should have a level of control over the process of board remuneration determination.

The Economics Minister of Rhineland-Pfalz, Volker Wissing (FDP) proposition is for the discloser of a remuneration payment corridor, which is attached to each management or supervisory position. This allows for a transparent conversation and the ability for all stakeholders to comment and state their positions. Any remuneration payments which intend to deviate from the disclosed corridor would require a shareholders meeting resolution. This ensures that shareholders maintain a level of control over their assets.4 This is a market led process, which ensures that undue legislation does not hamper the strategic decisions of both company management and shareholders.

Other political figures have proposed setting an arbitrary ceiling on total remuneration packages for all companies or for an upper limit based on a multiple of the company’s lowest paid employee.5 Such regulations may hinder competitive decision making and certainly curtail the ability of management and shareholders to remain in control of their own strategies.

Looking outward towards global peers, it becomes clear that Germany is not alone in the public debate of these issues. As a whole, international standards are moving towards the disclosure of individual remuneration packages for board members and senior management, as well as the provision of shareholder ‘say on pay’ votes. Although this is currently considered ‘best practice’, only few countries have systems and legislation in place that are sufficient enough to ensure that this occurs regularly or in all instances, meaning that shareholder control is also still limited in many countries. Companies are, however, increasingly encouraged or required to not only disclose, but explain, remuneration packages, often in line with a formalised remuneration policy, which can only be amended via a shareholder meeting resolution in some jurisdictions.6


1 Thomas, R.; Van der Elst, C. (2015). Say on Pay around the World. Washington University Law Review 92(3), 653-732. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2401761.

2 See: DSW (2014), DSW December 2014 Newsletter, Deutsche Schutzvereinigung für Wertpapierbesitz e.V. (DSW). http://www.dsw-info.de/fileadmin/downloads/Newsletter15.pdf (accessed February 2, 2017) also see Deutsche Welle (2016), Board pay shrinks in Germany’s biggest companies, DW Online, July 7th, 2016.. http://dw.com/p/1JLFK (accessed February 2, 2017) also see Thomas and Van der Elst (2015), supra note 1.

3 See: Fröndhoff, Bert-Friedrich; Fockenbrock, Dieter (2016), The Boardroom Pay Bonanza, Handelsblatt Global, March 30th, 2017. https://global.handelsblatt.com/companies-markets/germanys-boardroom-pay-bonanza-481910 (accessed February 2, 2017).

4 See: Neuerer, Dietmar (2017), FDP schlägt Gehaltskorridor für Top-Manager vor, Handelsblatt, January 5th, 2017. http://www.handelsblatt.com/politik/deutschland/winterkorn-debatte-fdp-schlaegt-gehaltskorridor-fuer
-top-manager-vor/19214400.html (accessed January 13, 2017).

5 See: Berschens, Ruth (2017), SPD-Plan gegen Boni-Exzesse, Handelsblatt, January 9th, 2017. http://www.handelsblatt.com/my/politik/deutschland/wahlkampf-munition-fuer-gabriel-spd-plan-gegen-boni-exzesse/19230188.html?ticket=ST-3356719-91s9KL5To2jjJMiGrsTm-ap4 (accessed January 13, 2017).

6 OECD (2011), Board Practices: Incentives and Governing Risks, Corporate Governance, OECD Publishing.

http://dx.doi.org/10.1787/9789264113534-en also see Thomas and Van der Elst (2015), supra note 1.

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