The “Say on Pay”: How the Compensation of Executive Board Members Is Changing

Currently, we observe changes in the compensation of executive board members of companies listed in the German DAX 30. Achieving long-term success is becoming increasingly important in determining executive compensation as compared to short-term profits. The reason for this is not to adjust the level of compensation, but to explain who earns how much and why. In the future, this justification will have to be disclosed to the shareholders at every annual general meeting. It is referred to as “Say on pay” and comes into force next year. According to a study conducted by the consulting firm Kienbaum, two-thirds of the German companies listed in the Dax, M-Dax and S-Dax are planning to change, or at least review, their systems for executive compensation. Some large companies have already taken this step.

In their annual study, the Technical University of Munich (TUM) and the DSW, Germany’s leading association for private investors, analyze executive compensation of DAX companies. According to this study, there is a downward trend in the level of compensation. Compensation of executive board members of the top 30 DAX companies was lower in 2019 for the second consecutive year. This is most likely due to the parallel decline in profits. However, with 0.3 percent, the drop in executive board compensation was smaller in 2019 compared to 2018, when a decline of 3.5 percent was recorded.

In a recently published article by Börse am Sonntag, Gunther Friedl, head of the study, says that there are two sides to this development. One the one side: Since general wages have increased, the gap between board compensation and gross wages is becoming smaller. But on the other side, there still remains a huge gap. “With an average of 3.4 million euros, board members earn 49 times as much as their employees,” says Friedl.

As in the previous year, board members of Volkswagen earned the most. Average compensation of board members of Volkswagen was 5.7 million euros – 8 percent less than in the year before. They earned slightly more than their counterparts at Germany’s most valuable company, SAP, with an average compensation of 5.6 million euros. In third place is Merck, which paid an average of 5.5 million euros. Nevertheless, Marc Tüngler, Managing Director of DSW, says: “Extreme compensation excesses” are a thing of the past.


The post The “Say on Pay”: How the Compensation of Executive Board Members Is Changing appeared first on Technical University of Munich – School of Management.

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