German board salaries are hardly comparable | staff

Last year Personalmagazin published an overview of CHRO salaries in DAX companies. But now there are no more reliable comparison figures. Due to changes in the law, the transparency of board salaries has suffered massively, says Regine Siepmann, partner at compensation consultancy HKP Group.

Personal magazine: Ms Siepmann, according to your analysis, the HR directors of VW and Deutsche Bank were ahead in terms of salaries last year. The average salary for the CHROs was 2.23 million euros. Who are the top earners among the Dax CHROs?

Regina Siepmann: It is no longer so easy to answer – for various reasons. In part, Deutsche Börse has changed the composition of the index. We now have a Dax40 instead of the previous Dax30. So ten companies have been added. As a result, the average values ​​for executive remuneration are not comparable with the previous year. In addition, there are new corporate law requirements for disclosure, the so-called disclosure of executive remuneration (ARUG II, see below). All this leads to different reporting bases for determining the executive board’s salaries.

CHROs earn less than other board members

Personal magazine: This means that a comparison with the previous year or between companies is not possible. How does it compare within a company? Most recently, CHROs earned the least amount of money among board members.

Siepmann: Also for fiscal year 2021, it is clear that the majority of CHROs received less remuneration than their board colleagues. This is often due to the fact that they have only been on the board for a short time, because no long-term variable remuneration has yet been paid. In the financial year 2021, six new CHROs were added – at Adidas, Bayer, Mercedes Benz, Siemens Healthineers, SAP and Zalando. In many companies there is a remuneration philosophy that board members bear the same responsibilities and liability risks and therefore should earn the same. However, companies often differentiate between individuals when it comes to executive compensation. In this case, the CHRO or CHROs rarely hold the top salary position.

In many companies there is a remuneration philosophy that board members bear the same responsibilities and liability risks and therefore should earn the same. However, companies often differentiate between individuals when it comes to executive compensation. – Regine Siepmann

Personal magazine: The German Companies Act now regulates how and in what form the board’s remuneration must be published. Why do you think it is not enough?

Siepmann: So far, the Dax companies have used the model tables in the German Corporate Governance Code (DCGK) for their remuneration reports. As a result, top salaries were very comparable. However, these tables have now been removed from the code because, in the opinion of the Code Commission, everything should actually be regulated in the German Companies Act.

Not everything is regulated in the Companies Act

Personal magazine: And isn’t it?

Siepmann: The Companies Act contains only very dry lines. The European and German legislators have also created confusion by introducing a new terminology for executive remuneration: the distinction between awarded and owed remuneration. Until now, DCGK only knew about the remuneration provided and meant the amount that related to the right to remuneration if 100 percent of the target was reached in a financial year. This now means the remuneration that was paid out during the reporting period. It’s a completely different perspective. In addition, the technical settlement usually takes place later. In case of doubt, the remuneration is not shown for the financial year, but for the financial year.

Personal magazine: Companies must now no longer publish the board’s remuneration in the annual report, but only with a call to the general meeting. To what extent does it also play a role?

Siepmann: Most companies continued to print remuneration in their annual reports. It is rather problematic that the representation there is no longer uniform. Some accounting firms were not very willing to compromise. After a very restrictive interpretation of the German Stock Corporation Act, the Institute of Public Auditors (IDW) approved an alternative interpretation. Therefore, the annual reports contain the remuneration for the financial year and for the financial year or both readings.

Transparency standards and comparability have fallen

Personal magazine: ARUG II requires companies to publish more remuneration information than before. This aims to increase transparency. In your opinion, has this been a success?

Siepmann: In a European comparison, we had a very high standard for transparency and good comparability. Other Member States lagged behind. While their standards have improved, ours have lowered them significantly. The companies have interpreted and implemented the new and less specific rules differently. And a direct comparison with the previous year’s salaries is no longer absolutely necessary. But without comparability, bare remuneration figures provide no help in understanding how top salaries develop. From this point of view, German board salaries are currently transparent but hardly comparable.

In a European comparison, we had a very high standard for transparency and good comparability. Other Member States lagged behind. While their standards have improved, ours have lowered them significantly. – Regine Siepmann

Personal magazine: The German Companies Act stipulates that the development in the board’s remuneration must now be presented in relation to the average employee salary over the past five years. What did it do?

Siepmann: This is not a new development for Germany. The Corporate Governance Code introduced this vertical comparison many years ago – in relation to the current status quo and developments. This is the only way to determine whether the wage gap will widen. The vast majority of companies set the target remuneration for this. This is more accurate since the majority of long-term incentives may not flow until years later. Since the remuneration report should show the actual remuneration in the financial year, the fluctuations are enormous. These are not directly related to the employees’ remuneration, which only changes minimally, e.g. due to collective bargaining and wage rounds. As a result, the relationship lacks any meaningfulness.

Personal magazine: According to ARUG II, the board must now set a maximum remuneration in the remuneration system – either per board member or for the entire board. Does it prevent salary overruns?

Siepmann: I consider this German peculiarity to be unnecessary, since variable remuneration has always been limited. The maximum remuneration must now be stated in the remuneration system and no longer only in the individual remuneration components. And the shareholders can lower this upper limit in a binding way. However, I think it is relatively unlikely to happen. Investors look less at the absolute remuneration and more at the pay-for-performance ratio – i.e. whether the company’s performance corresponds to the remuneration of the board members. When it comes to severance pay, however, investors are much more critical.

Executive compensation: Shareholders get more power

Personal magazine: The new rules have given the shareholders more power because they now annually vote on the remuneration report at the ordinary general meeting. How do you rate it?

Siepmann: Pretty critical. Because remuneration of the executive board is a matter for the board as the elected representative of the shareholders. The Board remains responsible for the compensation decisions it makes at this time. With the general assembly’s so-called “Say on Pay”, the legislature has created an additional actor and undermined the previous balance in remuneration management. The subject of executive remuneration is complex due to the large number of regulations and does not lend itself to detailed discussions at a general meeting. In addition, the share capital is only represented to a certain extent at the general meeting. And what is even more serious: the average ownership period of shareholders is only six to nine months. It is therefore not clear whether an investor from today will still be on board tomorrow.

With the general assembly’s so-called “Say on Pay”, the legislature has created an additional actor and undermined the previous balance in remuneration management. – Regine Siepmann

Personal magazine: Do board members really have such extensive remuneration expertise? And furthermore, Say on Pay is not legally binding for the company at all.

Siepmann: It is correct. According to ARUG II, the general meeting has the right to vote on the remuneration system at least every four years and when there is a significant change. This forms the framework, for example, how bonuses and long-term remuneration should be calculated. In addition, investors can also add their voice to how the compensation policy has been implemented in reality via “Say on Pay” on the compensation report. But it is always a hindsight consideration when the payment has already been made.

Personal magazine: But it can be an important indication for the board that the system is not working as desired – and that it needs to be adjusted, right?

Siepmann: Yes, it will also happen in reality. “Say on Pay” is considered formally successful if it receives more than 50 percent of the votes at the general meeting. But the institutional investors as well as proxy advisors expect a reaction if the 80 percent approval is not reached. The supervisory board is of course well advised to deal with the criticism. He has to look at whether it is a matter of transparency and presentation. So it could be that information was missing or not explained well. Or whether there is actually a general problem in the compensation system.

Personal magazine: What do you recommend to your clients on how to deal with the new situation?

Siepmann: Make the best of the current dilemma. It is not intended that the EU Commission will soon publish ground-breaking solutions in the form of new sample tables. Until then, companies should continue to use the proven model tables, even if they are no longer included in the DCGK.

Background: New reporting of executive remuneration

The second European shareholder rights directive (Act to Implement the Second Shareholder Rights Directive, ARUG II, in force since 1 January 2020) strengthens shareholders’ rights. They now have an annual “Say on Pay” vote on the remuneration report and can also set a ceiling for the board’s remuneration. The DAX companies – which have been 40 companies since September 2021 and not 30 as before – must no longer publish the board’s remuneration with the annual report, but at the latest with the notice of the general meeting. In addition, new information requirements have been added: including a comparative presentation of the development.

This interview was published in Personalmagazin number 11/2022. Read the entire issue in

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