In the US, there’s been a lot talk about caps on executive compensation. In fact, banks are running to pay back borrowed TARP funds so as not to be subject to the government-imposed caps on pay for key employees. It seems so very American.
Or maybe not.
The Germans have made a pitch to crackdown on what has been characterized as “excessive” executive compensation. German legislators are considering the imposition of strict caps; the new rules are expected to be in place by summer, despite protests by top execs at major German companies. Those execs voiced concerns about government intervention, writing in a letter to Chancellor Merkel: “Corporate decisions such as the shaping of board members’ contracts should not be set by law in the tiniest of details.”
The letter was not met with approval. In fact, it’s believed that the letter did more harm than good.
The proposed legislation would not only cap executive pay under certain circumstances but would also prevent the delegation of pay decisions to compensation committees. The law would also give shareholders more power over the process, including opening up the possibility for lawsuits in response to excessive pay.
One reason for the legislation was the public outcry over what appeared to be disproportionate pay for services in many German companies in a shaky economy. Notably, the management board of Porsche SE reached a record 143.5 million euros ($186.4 million) in 2008. The CEO of Porsche, Wendelin Wiedeking, is thought to be entitled to 100 million euros alone in 2009 under his compensation package. Wiedeking shrugs off criticisms, claiming that he has earned his compensation.
It’s a provocative debate in a country not known for its flashy execs. How far the government is willing to go - and the inevitable noise that companies will make about leaving the country if the strings are too tight - will be interesting to watch.
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