Germany: Opening up Deutschland AG

Global Finance, Jun 2003 by Beasley-Murray, Benjamin

With the German government introducing revisions to its voluntary corporate governance code this summer, Deutschland AG is facing renewed pressure for openness with its shareholders and greater accountability. Changes center on forcing listed companies to detail their board remuneration and will allow limits to be set on the performance-based part of executives' pay. Companies may also have to alter the terms of stock option payments so that options can be exercised when a company's share meets comparative targets (such as based on sector indices) rather than absolute targets, such as a particular price within time.

Although the difference between shop floor and management pay is less than in the US and elsewhere in Europe, German companies have traditionally been coy about releasing figures. In the last reporting year just six companies from the Dax 30 released comprehensive information about executive pay in their statements, with a smaller number giving some outline information.

When the code is amended-the original code was enacted only last year-companies that do not give full salary information will have to justify not doing this in a special section of their annual reports. German shareholders are becoming less and less accommodating to 'fat-cat' corporate culture and some chief executives in Germany will remember uneasily the shareholder-led ouster last year of Ron Summer, CEO of poorly performing Deutsche Telekom.

Germany has twice the number of individual shareholders it did five years ago, despite the intervening stock market crash. With cozy share crossholdings with banks increasingly unwound, management must tread carefully. Heavens, one day shareholders in Germany may even get to have a say on executive pay.