July 29, 2009
Germany: Limiting Executive Pay More Than the US
– Julie Hoffman, CompensationStandards.com
According to this Bloomberg article, Germany recently passed a law that will limit the amount of compensation companies are permitted to pay their executives, surpassing the restrictions both in the U.S. and UK.
Highlights of the new law include:
– It will be easier for supervisory boards to cut board pay in the case of “extraordinary” developments.
– Supervisory boards will be subject to increased liability if they approve excessive salaries for management.
– If management board members are held liable for damage to the company, they can be held personally liable for at least 10% of the damage, but no more than 1.5 times their fixed annual salary.
– Board members will only be able to cash in their share options after four years (the current requirement is after two years).
– Disclosure of executive compensation will become mandatory unless 75% of shareholders vote against it.
This new law is in addition to the restrictions passed last October, which limit compensation for top executives at banks taking government bailout funds to €500,000 ($670,000) and bans bonuses, stock options and severance.
Germany has a two-tier board system: a management board and a supervisory board. The supervisory board of large corporations is composed of 20 members, ten of which are elected by the shareholders, the other ten being employee representatives. The supervisory board oversees and appoints the members of the management board and must approve major business decisions.