• 7/23/2015

Compensation for board members of DAX companies decreasingly linked to performance

Management board salaries rising at slower pace than employee wages

The salaries of board members of DAX companies rose only slightly last year. At 1.5 percent, the increase lagged behind the growth of gross wages in Germany (3.8 percent). This was the finding of the annual study conducted by the German Association for Private Shareholders (DSW) and the Technical University of Munich (TUM) presented in Frankfurt today. However, compensation is decreasingly linked to board members' performance: the trend toward replacing performance-related pay with fixed salaries continued in 2014.

Coins and bank notes
DAX board members earn more - but salaries of employees rose at a stronger rate. (Bild: eyetronic / Fotolia.com)

In 2014, the board members of the DAX-30 companies earned an average of EUR 3.4 million, or 54 times the average salary of a DAX company employee. Unlike the previous year, however, employees' gross wages rose 3.8 percent, outpacing the 1.5 percent rise in board member salaries, which also lagged behind the earnings development among DAX-listed companies (up 6.8 percent).

In 2013, compensation for board members rose 4 percent, despite a 2 percent decrease in company profits and an increase of around just 1.4 percent in employee wages.

"The public debate surrounding executive pay may have contributed to this moderate development," says Prof. Gunther Friedl from the Chair of Controlling at TUM.

"There are fewer incentives to consider the company's long-term success"

Instead, another trend has taken a firm hold: while the compensation component that is tied to company share price dropped by an average of 11.1 percent, fixed salaries rose by 4.9 percent. This puts their share in the total compensation package at an average of 30.5 percent. Higher fixed salary components already contributed significantly to the salary increase seen in 2013.

"For the shareholders, and thus the company owners, who have to pay the salaries, the absolute sum of board member compensation often plays only a secondary role," says DSW's Managing Director Marc Tüngler. "It's more important that salaries develop in line with business performance. Increasing salaries along with decreasing earnings generally lead to extensive discussions at annual shareholders' meetings. That indicates a problem with the system."

Prof. Gunther Friedl adds: "We find this trend worrisome. Salaries should be based primarily on board members' performance. If a company's key performance indicators drop, then its salaries should be adjusted accordingly. A company's share price reflects not only these short-term developments, but also the expectations for its long-term outlook. If the corresponding compensation is reduced, there are fewer incentives for board members to make decisions that also consider the company's long-term success."

VW CEO Winterkorn once again highest-paid German executive

As in previous years, the Chairman of the Board of Directors of Volkswagen AG, Martin Winterkorn, is the highest-paid executive in Germany, earning EUR 15 million - of which EUR 13 million is tied to the company's success. Trailing well behind him are SAP's Bill McDermott, at EUR 7.9 million, and Karl-Ludwig Kley of Merck, at EUR 7.8 million.

The growing transparency of executive pay continued in 2014. Above all, pensions are presented more clearly. Most DAX companies now use the model tables recommended by the German Corporate Governance Code (DCGK), a commission introduced by the German government.

More information:
Overview of compensations / press conference statements (German)

Prof. Dr. Gunther Friedl
Technical University of Munich (TUM)
Chair of Controlling
Tel: +49 89 289 25801
gunther.friedlspam prevention@tum.de

Technical University of Munich

Corporate Communications Center

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