Calls Go Out to Limit Executive Salaries | Business| Economy and finance news from a German perspective | DW | 21.07.2004
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Calls Go Out to Limit Executive Salaries

After DaimlerChrysler managers offered to cut their own salaries to diffuse a row with unions over cost-savings plans, a debate over executive pay packages has flared up. Some want top salaries to be capped by law.


High CEO salaries during economic stagnation have hit a nerve

For many, the fact that the board of DaimlerChrysler has raised its own pay by 130 percent since 2000 while announcing plans to cut personnel costs and possibly lay off workers is the height of hypocrisy. Coming at a time when Germany is experiencing low levels of economic growth and high unemployment, calls have been going out from many quarters demanding that something be done to bring down the compensation levels of top executives.

Pay levels "are not only immoral but, ethically speaking, not at all justifiable," Edzard Reuter, 76, the former chief executive of Daimler-Benz, told German radio. "The participants must come to their senses. If they don't do so, the government must eventually take action."

Similar calls have been echoed by top politicians from several parties. The head of the governing Social Democrats (SPD), Franz Müntefering, called top manager salaries in the millions of euros "beyond all morals." On the other side of the political spectrum, Karl-Josef Laumann of the conservative Christian Democrats called some executive salaries "exaggerated many times over." He added: "When cuts are demanded of workers, some modesty up in the executive suites would be helpful."

Galerie Josef Ackermann

Deutsche Bank head Josef Ackermann

The issue of executive compensation is especially sensitive now as the trial winds up of Deutsche Bank head Josef Ackermann (photo) and former Mannesmann executives accused of accepting improper payouts totalling $77 million when the company was taken over in 2000 by Vodafone.

Klaus Brandner, the SPD's spokesman on economics and labor issues, said executive salaries in Germany were heading toward levels seen in the United States, "but wages are going in the direction of those in Eastern Europe."

"That doesn't fit together," he said, adding that the large discrepancy between wages in the board room and on the factory floor could endanger social stability. "I call on companies to find a balance."

Hans-Jochen Vogel, former head of the SPD, has suggested basing executive salaries on the wages that workers earn. He said in the past, a chief executive earned from 20 to 30 times what a worker did. Today, an executive generally takes home from 200 to 370 times what lower-level employees do.

Legislating salaries?

Germany's Justice Minister Brigitte Zypries has said she is not ruling out taking legal action to address the issue. She told reporters on Wednesday in Berlin that the government was not considering instituting a national "maximum wage" law, but "one might consider linking salary developments with certain indicators."

Instead of linking salaries with stock prices, some have suggested, they could be adjusted according to sales, profit or the number of trainee positions the company creates.

Several weeks ago, Zypries said she had not ruled out that lawmakers might be forced to act if self-regulating forces in the economy did not. She said her ministry would observe developments in executive salaries over the next year or so and then decide whether to take action.

Not that high in comparison

Schrempp sagt zur Daimler-Crysler-Fusion aus

DaimlerChrysler chairman Jurgen E. Schrempp

While Germany's top executives like DaimlerChrysler head Jürgen Schrempp (photo) and Deutsche Bank CEO Ackermann do have attractive pay packages--at around €10 million and €11.1 million respectively--they do not reach the levels of American CEOs. In 2002, the median compensation of executives running 100 of the biggest companies in the US was $33.4 million. Nearly one-third pulled in compensation of $50 million or more.

"In international comparisons, salaries of German managers are not in the upper end, although our wages and salaries are," Michael Rogowski, president of BDI, told reporters on Wednesday in Berlin. He said passing a law capping top salaries was "a crazy idea."

Others say a cap of salaries would hurt Germany's attractiveness as a place to do business and would hurt attempts to put the best and brightest in top positions at the nation's most important companies. "If one makes pay cuts like we're seeing with the DaimlerChryser board the rule, we run the risk that our best people will look for jobs in other regions or with foreign companies," Jörg Krings of the management consulting firm Booz Allen Hamilton told the Financial Times Deutschland.

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