Since the financial crisis in 2008, lawmakers have significantly tightened the requirements for designing management board compensation systems. On a national level, the German Commercial Code (Handelsgesetzbuch, or HGB), the German Stock Corporation Act (Aktiengesetz, or AktG) and the German Corporate Governance Code (Deutscher Corporate Governance Kodex, or GCGC) provide a framework for disclosing and designing compensation systems for the executives of listed companies.

The European Shareholders’ Rights Directive to be implemented by member states in 2019 represents the establish-ment of an additional regulatory element at the European level, increasing the influence of investors and proxy advisors on management board compensation by granting them the right to approve the compensation report annually and submitting the compensation policy underlying this report to vote by the AGM at least every four years.

In addition to the evolving regulatory requirements, German listed companies find themselves in an investor landscape that is also changing.  Allocation of money to passive funds is growing significantly in Germany. At the time this study was conducted, around 40% of invested money in DAX were passive investments.

For investors, this means that their influence on their target companies is shrinking, because the nature of passive funds dictates that positions must be held. Governance of companies is the last lever rem