Earnings of DAX managing board members decrease

Research news

Last year, the managing board members of DAX-listed companies saw their pay go down slightly for the first time since 2012, while the salaries of German employees increased. This was the finding of the annual study conducted by the association for private investors DSW and the Technical University of Munich (TUM), presented in Frankfurt today. Bucking the trend observed in previous years, companies were also more inclined to link pay to share price performance and thus to the long-term success of the company.

In 2015, the managing board members of companies listed on the German stock index DAX earned EUR 3.34 million on average, which represented a 1.8-percent decrease on the previous year. The gross wages earned by employees in Germany rose by 4 percent in the same period. On average, DAX board members earned 50 times more than DAX company employees. By comparison, this figure was 54 in 2014.

Apart from one exception in 2012, board member salaries had been on the increase since 2009, most recently with a rise of 1.1 percent. In 2015, however, the profits of DAX-listed companies fell by more than 5 percent, which resulted in a corresponding 5-percent drop in performance-related pay, i.e. the salary components that are primarily linked to the company’s annual balance sheet. This was not the only earnings component to take a hit either, with fixed basic salaries also down by 1.4 percent on average.

The value of shares, options and participatory rights granted to managing board members, however, was 4.7 percent higher, with the study calculating the value of these rights on the date they were granted. This form of compensation incentivizes board members to focus on their company’s long-term success as this can have a positive impact on the value of their own shareholdings. In previous years, companies had decided instead to steadily increase fixed salaries, whereas compensation in the form of shares had fallen by over 10 percent in 2014.

Not all DAX-listed companies link compensation to share price

‘We were surprised by this shift in trend,’ says Prof. Gunther Friedl from TUM’s Chair of Controlling. ’There is obviously a growing recognition that a company’s long-term success should be the most important yardstick for board member pay. We have noted, however, that fixed salaries, which are not tied to performance, are still accounting for on average over 30 percent of the overall compensation package. And not all DAX-listed companies are linking compensation to their share price.’

‘The fact that variable pay is indexed to performance over a number of years would account - in certain cases - for why we are seeing a rise in executives’ pay even though their company’s profits fell noticeably during the last financial year. The success of previous years carries through to current payouts. Although these trends may appear somewhat paradoxical, we believe it makes sense to align the variable components of executive pay with a longer-term performance perspective over a number of years,’ comments DSW’s Managing Director Marc Tüngler.

Volkswagen board members topped the salary scale

Volkswagen executives were once again the highest earners in Germany with an average package of EUR 6.97 million, followed by Merck with EUR 6.27 million and BMW with EUR 4.44 million. The average pay received by CEOs was EUR 5.10 million. The highest package was received by Daimler boss Dieter Zetsche, who earned EUR 8.54 million in 2015. He overtakes the long-standing top earner Martin Winterkorn, who was no longer included in the reckoning following his resignation from Volkswagen during the year. Karl-Ludwig Kley, CEO of Merck, was number two on the list with EUR 7.89 million, ahead of the new Volkswagen CEO Matthias Müller with EUR 7.35 million.

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