DSW publishes its brand new Directors' Pay Survey 2011

Public and political interest in directors’ pay has significantly increased in recent years; awareness but also criticism has never been greater. DSW, Germany’s largest investor association, has been taking a close look at the topic of Directors’ Pay since 2001. Our annual survey has significantly added to the public awareness and consequent debate regarding regulation and salary limits. In cooperation with the Business and Controlling department at the TU Munich,  DSW publishes its brand new Directors' Pay Survey 2011 .
 
The Findings
Directors’ Pay in the DAX 30
The average director of a company listed in the DAX 30 index received 2.9m EUR in cash and share-based remuneration in 2010 which puts pay levels back to 2007 levels, before the global financial crisis. Only two Dax 30 companies pay their average director less than 1m EUR, three companies more than doubled the payments to their executives in 2010.
 
The average compensation increased by 22 percent compared to 2009 and was structured as follows: 29% was made up of fixed salary, 40% came from variable bonuses, linked to short term company performance, 10% related to cash bonuses linked to mid/long-term company performance and 21% were bonuses linked to share performance. From DSW’s point of view the still high amount of short-term bonuses is quite astonishing: In 2009, German Share Law requires supervisory boards of listed companies to ensure that the remuneration structure within the management board is linked to the sustainable development of the company and that variable payments have a multi-year assessment basis. However, with still 40% of short-term bonuses on average it seems as if this law has not yet arrived in German boardrooms.
 
DAX CEOs earned significantly more than their colleagues on the board: on average they received 4.5m EUR although the range is enormous: Volkswagen CEO Martin Winterkorn tops the list with 9.3m EUR, earning 15 times as much as his colleague at Commerzbank, Martin Blessing, who – due to the SoFFin cap – took home 0.6m EUR in 2010.
A spot on the MDAX
The average executive in the second largest German index MDAX received 1.5m EUR in 2010 in cash and share-based remuneration. In comparison to the previous year, remuneration increased by 17%. Mathias Döpfner, CEO of Axel Springer, is the number one paid executive in the MDax with estimated 6.6m EUR followed by Sky CEO Brian Sullivan with 5.8m EUR in total remuneration.
 
Transparency remains a deficit
Currently 29 of 30 DAX companies disclose their executive board members’ remuneration individually. Only HeidelbergCement refuses their shareholders an accurate inspection. The survey showed, however, that transparency in the MDAX is significantly lower than in its prime counterpart, the DAX: 13 out of 50 companies (among them Axel Springer) did not report individually on their managers’ remuneration. It is therefore absolutely necessary to optimise the remuneration reporting and as a consequence its understandability. As long as no individual reporting is provided and the connection between pay and performance is not transparent or key figures are not well-defined, German supervisory boards still have a lot of work in front of them.
Taking account of systems becoming more and more complex, improvement is more than urgent. DSW accordingly demands a standardised disclosure and explicit guidelines for calculation methods and compensation components. Role model is the standard of the
US Securities and Exchange Commission (SEC).
 
Say on Pay
In 2010, companies for the first time had the possibility to give their shareholders a Say on Pay. Since then, all DAX 30 companies let their shareholders vote on the executives remuneration system at least once. This means that the implementation of the
voluntary advisory vote has become an achievement in business practice.
 
The Directors’ Pay Abroad
The question whether directors’ pay is appropriate, is primarily based on company performance. However, it is also important, to take a look at directors’ pay in other countries with well established capital markets.
DSW therefore also surveyed management remuneration in France, Switzerland, and the US by examining the cash and share-based remuneration of CEOs in each country’s main stock index: the Dow Jones in the US, the SMI in Switzerland*, and the CAC40 in France.
 
From an international perspective, German CEOs have no reason to complain: their average remuneration of 4.5m EUR in 2010 is higher than in France (3m EUR) but below Switzerland, which pay 5.3m EUR on average. Compared to the US, Germany falls far behind: a CEO of a DJIA company earned 12m EUR on average in 2010. Comparing the structure the survey showed that variable cash payments have a higher perception in Germany than in France, Switzerland and the US: While this component accounted for 50 percent of the remuneration in German boards, French CEOs variable cash payments only relate to 32 percent, in the US only to 28 percent and in Switzerland even only to 18 percent! Especially in Switzerland and the US, company focus more on share-based payments which account for 51 percent of total remuneration in Switzerland and for 59 percent of total remuneration in the US.
 
* data based on the Ethos Survey on Executive Remuneration 2011