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Report applauds development of German companies' approach to remuneration

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  • Report applauds development of German companies' approach to remuneration

GERMANY - A report on executive pay in Germany has found that the financial crisis and a number of legal changes have succeeded in increasing transparency and sustainability in the remuneration structures of DAX company board members.

According to Towers Watson, all companies listed on the German stock exchange have held votes on executive remuneration over the last two years.

Olaf Lang, head of Talents and Rewards at Towers Watson Germany and co-author of the report, told IPE: "More than 90% achieved a positive outcome, with only two or three having to adjust their remuneration schemes."

Since 2010, legal changes have allowed such votes to be held on a voluntary basis, but the law also gives shareholders the right to demand a vote should the company not offer to hold it.

For Hans-Christoph Hirt, executive director at Hermes Equity Ownership Services, this is a "neat solution".

On the whole, he sees "positive development" regarding structures and transparency in executive remuneration in Germany.

Lang, too, noted that both the financial crisis and the law changes introduced in Germany in the wake of the crisis had increased sustainability and transparency in remuneration structures.

"But that does not mean everything is perfect," Hirt added.

The Hermes executive said he would like to see more long-term incentives for remuneration, as even three or four years were insufficient to measure the success of some strategies in some sectors, he said.

"Further, even more companies should use shares as part of the remuneration to ensure alignment of interest between the shareholders and the executive board," Hirt added.

He said he would also like to see shareholders being included in the remuneration decision process itself, rather than merely voting at the annual general meeting.

Lang said improvement was needed on the issue of transparency, but also on "comprehensibility", as some remuneration reports have become too complex for shareholders to understand.

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