Big payday

Board members at Germany's 30 DAX-listed firms earned on average 2.9 million euros a year in 2010, a 22 percent increase over the previous year, a new study has found. That puts their pay levels back to 2007 levels, before the global financial crisis took a chunk out of executive pay checks.

While German executives seem to have emerged from the crisis years with their bank accounts quite healthy, they still don't have the kind of compensation packages their US counterparts enjoy.

In fact, German executive pay is somewhat in the middle of the field in international comparisons, according to the new study on compensation released this week by the DSW investors' association.

CEOs in Germany earned on average 4.5 million euros in 2010, higher than in France (just over 3 million euros) but below Switzerland, where 5.3 million euro is the average.

Germany falls far behind countries like the United States, which has the highest rates of executive compensation. American top bosses earn on average 12 million euros, the DSW study said,

Other American studies put that number slightly lower, but it is always well above German levels.

Uncomfortably high

While German rates aren't that stratospheric, German execs aren't doing too badly. The highest paid is Martin Winterkorn of VW, who in 2010 earned 9.3 million euros. Behind him was Deutsche Bank's Josef Ackermann (8.99 million) and Peter Löscher of Siemens (8.98 million).

Those kinds of salaries, while perhaps considered moderate in New York boardrooms, are still uncomfortably high for many in Germany. While board pay went up 22 percent last year, thanks in part to a German economy roaring out of crisis mode, wages for workers rose a much more modest 2.7 percent.

The authors of the study say the growing gap between the rich and the rest is worrying, and if executive pay climbs over the 10 million euro level, social unrest could result as resentments build.

"When the salary gap becomes too big, at some point it becomes problematic," Christiane Hölz, the DSW director in North Rhine-Westphalia, told Deutsche Welle.

Keeping the best and brightest

Defenders of high executive pay have argued that today's chief executives are worth more because they have much more on their plates than their predecessors did, especially as companies have become larger and more complex.

Many, especially in the United States, have argued that in a globalized world, large pay packages are necessary to attract the kind of talent that can successfully run these intricate corporations. If compensation levels aren't attractive, talented executives could in theory simply move to a company in a country where the pay check is bigger.

"That is the argument that is made in Germany as well, but we still have quite a lot of CEOs working here," Hölz said.

Critics of executive pay would like to see compensation packages changed. The study found that fixed salaries make up 29 percent of total executive pay at DAX companies, while variable bonuses were responsible for 50.2 percent and stock-performance-based pay made up the other 20,8 percent.

For Germany's top-paid exec Winterkorn, his performance-based bonus was much more important to his bank account than his fixed salary, which brought him 142,000 euros per month. The bonus, however, netted him more than 400,000 euros a month.

But it is not all about the money, according to Tim Zühlke, one of the founders of Indigo Headhunters, a Frankfurt-based executive search firm that specializes in recruiting managers for the financial services sector.

"If you're at the top management level, it's largely about the challenge of the work environment and especially the corporate culture," he told Deutsche Welle, adding that a highly successful executive in a French or Italian company might not do well in a German firm, despite being lured with a multi-million dollar pay package.

Avoiding the American way

Many German observers are uneasy with the upward direction of CEO pay because they do not want it to reach American levels, which are widely considered unfair, even by many in the United States.

At a time when millions of Americans are still reeling from the initial hit of the global financial crisis and trying to hang on to homes and jobs, the heads of major US corporations like 3M, General Electric and Cisco Systems are making as much today as they were before the recession hit. Some are earning even more.

For the average US CEO, the good times have returned. For the average American worker, they have not. The recovery has not trickled down.

The CIA's World Factbook, which uses a common economic indicator of inequality called the "Gini coefficient," has ranked the US as far more unequal than the European Union.

In terms of inequality, the US is in the company of developing countries — just behind Cameroon and Ivory Coast, and just ahead of Uganda and Jamaica.

Investor group DSW does not advocate the government tackle this in Germany by setting a salary cap on executives salaries. Corporate pay agreements are private contracts and salaries are not paid by the taxpayers, but in the final analysis, by stockholders, Hölz said.

"But it would be better to ask the companies to be aware of their responsibilities and establish an appropriate and sustainable pay package," she said.

Unfortunately, she added, things do not appear to be heading in that direction.

Author: Kyle James
Editor: Nicole Goebel