Germany Backs Curbs on Manager Pay Going Beyond U.S. Proposals
Chancellor Angela Merkel’s coalition voted through a law to curb manager pay at public companies in Germany, riling executives with a package of measures that goes beyond proposals in the U.S. or Britain.
The law includes steps to give supervisory boards more power to set salaries and financial penalties for executives who are found guilty of negligence. The government said the aim is to make compensation more transparent and geared to a company’s long-term interests; executives said politicians should stay out of corporate management.
“Mrs. Merkel should have empowered shareholders to determine pay,” Anton Boerner, president of the Berlin-based BGA exporters group, said in an interview. “The door’s been opened to lawmakers to meddle in the intricacies of boardroom pay-setting.”
Merkel’s Christian Democrats and the Social Democrats, coalition partners and rivals at Sept. 27 national elections, have been working on the legislation since the beginning of 2008. They’ve tightened the proposed clamps on pay as the financial and economic crisis has unfolded, sending Germany’s benchmark DAX down 29 percent in the past 12 months.
“It’s not about envy or an emotional overreaction to the current crisis,” Joachim Poss, Social Democratic finance spokesman, told parliament in Berlin yesterday before the vote. “This is about the kind of society we want to live in and how the product of combined efforts in our companies is to be distributed.”
Share Options, Fines
The law extends the period after which share options can be exercised to four years from two and requires that bonus payments be spread over the life-cycle of investments. Managers found liable for negligence by a court face fines equivalent to a minimum of 18 months pay, according to parliament’s daily bulletin.
That goes further than the U.S. or U.K., where proposals are focused on efforts to curb pay and bonuses at financial institutions bailed out with public money.
In the U.S., Treasury Secretary Timothy Geithner announced plans June 10 to require companies that got aid through the Troubled Asset Relief Program to give shareholders a non-binding vote on pay, without setting limits.
In Britain, the government ordered its Financial Services Authority to evaluate banks’ pay policies and consider whether some institutions should be required to maintain higher levels of capital to compensate for risks incurred by bonus awards.
Fred Goodwin
The U.K. steps were announced amid political pressure over former Royal Bank of Scotland Group Plc Chief Executive Fred Goodwin’s 703,000-pound ($994,000) annual pension fast payday loan no faxing. Goodwin agreed to cut his pension by 38 percent after the Edinburgh- based bank cleared him of wrongdoing in its collapse and takeover by the government, the bank said yesterday.
Germany already requires financial institutions tapping its 500 billion-euro ($695 billion) bank-rescue fund to cap manager pay at 500,000 euros a year, relinquish bonuses, abandon business the state says is risky and pay dividends only into the state-run fund.
Merkel’s Christian Democrats and the Social Democrats led by Foreign Minister Frank-Walter Steinmeier, facing elections 100 days today, have wrangled over the latest steps applying to all public companies. The parties agreed only this week on a compromise that excludes bonuses from sanctions while raising fines on fixed salaries for negligent executives.
‘Pure Populism’
Even so, Manfred Wennemer, the former chief executive officer of tiremaker Continental AG, dismissed the steps as “pure populism.” Companies have already reined in top managers’ pay during the crisis, showing that market mechanisms function adequately, he said in an interview on NDR television.
Chief executives at DAX companies earned on average 3.68 million euros in 2008, 24 percent less than in 2007, according to business consultant Towers Perrin in Frankfurt. At the same time, earnings per share for the 30 companies in the benchmark index fell an average 58 percent.
Martin Winterkorn, the chief executive of Volkswagen AG, was paid the most among DAX managers last year, earning 12.7 million euros, according to company figures. Josef Ackermann, the chief executive of Deutsche Bank AG, volunteered a 90 percent pay cut last year to 1.38 million euros.
Coalition and opposition lawmakers have bridled at attempts by several former company chiefs to win better deals over pay settlements in court.
In March, Georg Funke, the former chief executive officer of Hypo Real Estate Holding AG, began a legal battle to increase his pay settlement after being fired. The government has granted 102 billion euros of credit lines and debt guarantees to keep Hypo from bankruptcy.
“I’m not totally opposed to putting a brake on runaway pay,” Boerner said, adding that he can understand the pressure for action during the crisis. “I do oppose politicians dictating pay rules.”
Filed under: money by Wolf