Executive pay debate revived in Germany

Executive pay debate revived in Germany

4th January 2008, Comments 0 comments

Germans are angry at manager rewards as the economic boom passes them by.

The news that Porsche's chief had been awarded a large payout for the sports car maker's financial performance would normally have been consigned to the financial pages.

But it coincided with a political discussion on setting a statutory minimum wage in the postal sector before the former state monopoly, Deutsche Post, faces the full force of competition in its letter delivery services next year.

The roughly 60 million euros ($90 million) that Porsche boss Wendelin Wiedeking took home last year contrasted sharply with the 9 euros an hour a postal worker would get when the measure goes into effect.

With overtime, that would take a postman or woman to a little more than 20,000 euros a year -- barely enough to live on and not nearly enough to support a family. Workers in Deutsche Post's competitors currently get nowhere near even that.

Chancellor Merkel lashes out

Chancellor Angela Merkel had Wiedeking in mind when she lashed out at her Christian Democratic Union (CDU) party congress in early December at "payouts in the realms of fantasy."

German managers might like to compare themselves to their counterparts in the United States but in Japan, top car managers earn not thousands of times what workers do, but just 20 times the rate of a skilled factory worker, Merkel said.

To add insult to injury, Deutsche Post Chief Executive Klaus Zumwinkel chose his moment to sell share options, cashing in a profit of around 2 million euros as the company's share rose after it became clear a postal sector minimum wage was on the cards.

Merkel and her party reject legislation to solve the problem of excessive management payouts.

But the chancellor was pleased at the "intense public debate" and hoped it would lead to those in responsible positions to "reflect," her spokesman Thomas Steg said.

Left out

The anger is deeply felt. A new survey by the Allensbach Institute found the vast majority of Germans believed they are not benefiting from the country's economic revival.

Just 15 percent thought the benefits were being justly distributed, a historic low, compared with 26 percent as recently as last year, the conservative institute found.

That belief is fully justified, according to official government figures, which showed that household disposable income had actually declined by 0.4 percent during the height of the boom, from the third quarter of 2005 to the same quarter this year.

Changes to the tax regime were given as the main reason.

Lower purchasing power

Figures prepared by the WSI economic research institute, which is linked to the still-powerful trade union movement, showed that worker buying power had declined for the past three years running.

Contrasting this with manager rewards, German Confederation of Trade Unions (DGB) spokesman Axel Brower-Rabinowitsch noted that "some managers are cashing in millions for failure while the upswing passes other workers by."

"These excrescences undermine social cohesion within companies and in society at large," he added. Moderation, please

That was theme taken up by German President Horst Koehler in November when he called for a "culture of moderation" in an interview with the business daily Handelsblatt.

"Business leaders have got to grasp that their actions have an effect on social cohesion," he said.

Some top managers are themselves concerned at the uproar. Siemens Chief Executive Peter Loescher has come out firmly against fees for joining a company or for golden handshakes.

"Managers should not lose touch with reality," he told the daily Sueddeutsche Zeitung.


The Social Democrats, the junior partners in Merkel's broad coalition, simultaneously announced they were setting up a working group to look into the possibility of legislation, despite possible constitutional hurdles.

But others have told the politicians to mind their own business.

German Chambers of Commerce and Industry (DIHK) President Ludwig Georg Braun called the debate "absurd."

Listed companies had long had to be more open about management pay structures, and precisely this transparency had led to the current uproar, he said.

"This is not a playground for politicians," Braun said.

A populist debate

Wiedeking's payout may have been substantial by anyone's calculations, but it was far from unusual.

Deutsche Bank Chief Executive Josef Ackermann took home 9.5 million euros last year in pay alone, not counting options and other bonuses.

And the salaries of the heads of other top companies in the leading DAX 30 index were also all in the millions.

The largest economic research institute, the DIW, called the debate "populist."

"There are footballers and popstars who earn similar amounts, sometimes for substantially less achievement," DIW President Klaus Zimmermann said.

Many newspaper commentators took a similar line, calling instead for supervisory boards and shareholders to curb manager excess.

But the majority of Germans want action. A TNS-Emnid survey published over the weekend found 65 percent in favour of setting a maximum salary.

Copyright DPA with Expatica


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