German government to clamp down on executive pay | Germany| News and in-depth reporting from Berlin and beyond | DW | 24.04.2009
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German government to clamp down on executive pay

German Chancellor Angela Merkel's cabinet has outlined key elements it wants to see included in a law that will curb executive salary packages and hold top managers accountable for their mistakes.

Money changing hands

New rules would stop managers from cashing in stock options while they're still on the job

Although the measures agreed on by representatives of Merkel's Christian Democratic Union (CDU) and the Social Democratic Party (SPD) do not put a cap on managers' salaries, they are designed to provide tighter control over executive remuneration and encourage long-term financial planning among top-earners.

The proposed law change would bar members of management and supervisory boards from cashing in their stock options during their period of employment.

It would also set senior executives' personal liability for breaches of duty at up to one year's salary in every instance.

Currently most German executives obtain personal-liability insurance at their employer's expense, meaning that even if they are sued, the full sum of damages must be paid by the insurer.

The new liability rule would mean that if a court imposed a 5-million-euro damages award on an executive who is paid 2 million euros per annum, the insurer would pay 3 million while the executive would pay the other 2 million.

The points agreed to on Thursday are to be passed on to the Justice Ministry to be formulated into formal draft laws that must still be approved by both houses of parliament.

As in other nations, Germans have expressed outrage at executives escaping penalty for past misdeeds and obtaining huge remuneration, even when their companies are in deep financial trouble and sacking staff.

Germany has been pushing for an overhaul of the global financial framework and has blamed the world recession on the "casino capitalism" prevalent in the United States and Britain.

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