• The average total remuneration paid to the Chairmen of the Supervisory Board at DAX increased by around 4% in 2018 to €424,000
  • Parallel decline in consolidated net profit illustrates decoupling of the remu-neration of the company's success and shareholder interests

 

hkp/// group Analysis "Annual Report Evaluation of the DAX Supervisory Board remunera-tion 2018"

Frankfurt am Main, 29 April 2019. According to a recent study by the consulting firm hkp/// group, the average remuneration of Supervisory Board Chairpersons in Germany's leading listed companies (DAX companies) increased by 3.9% to €424,000 in the 2018 financial year. Since 2006, the remuneration of the chief overseer of the DAX companies has increased by around 4.3% per year but remains significantly below the remuneration levels of the CEOs in the same companies. The difference in remuneration is approximately fifteenfold.

With around €858,000, the Chairman of the Supervisory Board of Deutsche Bank, as in the previ-ous financial years, tops the remuneration ranking of DAX-Chairmen. The Chairman of the Super-visory Board at Beiersdorf ranked at the bottom with € 228,000.

In view of the continued transformation of the Supervisory Board remuneration by the companies to pure fixed salaries, the remuneration has been decoupled from the business development. Thus, the current increase in remuneration is contrasted by falling corporate profits: The average consolidated net income of the DAX companies fell by 3% in 2018. Only five companies, namely BMW, Continental, Deutsche Bank, Fresenius and Fresenius Medical Care, rely on a combination of fixed and long-term variable remuneration for their Supervisory Board members. A short-term variable remuneration based on the business result of one year can no longer be found in any DAX company. Regulations concerning the acquisition and long-term holding of a significant share in the company's own shares can only be found at BASF, Bayer, Daimler and RWE.

The "Annual Report Evaluation of the DAX Supervisory Board remuneration 2018" analysis is based on the annual reports and statutes of 29 of the 30 DAX companies, since the corresponding documents from Linde plc have not yet been published for the last financial year.

According to the study authors, the current overall image of the Supervisory Board remuneration in the DAX companies reveals few surprises. "We are seeing increasing levels of remuneration, which - although slowly - are reaching more appropriate levels even among the smaller DAX rep-resentatives," explains hkp/// group partner Regine Siepmann. However, this is critical of the mani-fested trend toward exclusive fixed compensation, which, according to hkp/// group, does not re-flect the duties of control and strategic support. "If only a pure fixed remuneration is paid, then this should be supplemented by a share purchase obligation. The Supervisory Board, representing the shareholders, needs more skin in the game,” said the corporate governance expert.

Not at eye level: Remuneration level remains significantly below that of the Executive Board
With the current average remuneration of a Supervisory Board Chairman in DAX companies amounting to €424,000, the mark of € 400,000 is exceeded for the second time in a row (2017: €408,000). It represents the highest value in the remuneration comparison that has been possible since 2006.

In contrast, the remuneration of the CEOs in DAX companies in 2018 amounts to an average val-ue of around €6.4 million (payout according to DCGK without pension service cost and fringe ben-efits). Thus, the ratio between the average remuneration of Chairmen of the Supervisory Board and the Chief Executive Officer is 15.2. The remuneration gap is particularly clear in the example of Beiersdorf: In the 2018 financial year, the now retired CEO received a remuneration of €23.4 million (payout according to DCGK without pension service cost and fringe benefits), thus taking the top spot in the DAX. The remuneration of the Chairman of the Supervisory Board amounts to €228,000 in the same period and represents the lowest value in the DAX comparison.

The study authors believe that this immense difference in the amount of remuneration is not justi-fied. "More than ever before, the Chairman of the Supervisory Board is associated with strategy support and intensive sparring for the Executive Board. Today, no significant investment or other decision of any size can be made without the involvement of the Chairman of the Supervisory Board. Remuneration for the office should therefore be designed to be at eye level. But we are a long way from that,” says hkp/// group Senior Manager Nina Grochowitzki.

The remuneration ranking of the DAX Supervisory Board Chairmen, who worked year-round in 2018, is headed by Deutsche Bank for the fourth consecutive year. As in the previous year, BMW and Fresenius are in second and third place. The spread between the highest and lowest remu-neration of a DAX Supervisory Board Chairman remains almost unchanged at a factor of 3.8.
 

Top remuneration for Supervisory Board Chairman in DAX

Total remuneration

Deutsche Bank

€ 858,333 (+7%)

BMW

€ 640,000 (+/-0)

Fresenius

€ 640,000 (+1 %)

Lowest remuneration for Supervisory Board Chairman in DAX

Total remuneration

Merck

€ 237,000 (+/-0 %)

HeidelbergCement

€ 232,000 (+/-0 %)

Beiersdorf

€ 228,000 (+2 %)

Fig.: The highest and lowest remunerations of DAX Supervisory Board Chairmen who worked year-round for the 2018 financial year (figures in brackets: change compared to the previous year)

 

Little change in the European comparison: DAX levels below average
The remuneration levels for DAX Supervisory Board Chairmen are below the European average (STOXX companies). As of today – after 51 out of 71 companies from the Indices STOXX Europe 50 and Euro STOXX 50 – this figure is around €913,000. Traditionally, on a European scale, the Chairmen of Swiss companies are at the top, which was also seen in the 2018 financial year: The rankings are led by UBS (€4.9 million), followed by Roche (€3.9 million) and Nestlé (€3.5 million), although, unlike a Chairman of the Supervisory Board in Germany, the function of the Chairman is considered full-time.
The Chairman of the Supervisory Board of the first non-Swiss company, HSBC, is at rank 5 (€1.7 million). The DAX leader Deutsche Bank (€858,333) is in 10th place compared to the STOXX companies, which is still below the European average.

The outlook: Statutory new regulations as an impetus for adjustments to the remuneration systems
From the perspective of the study authors, the European Shareholders Rights Directive - imple-mented in Germany by the so-called ARUG II - will not only affect the scope and level of responsi-bility of the Supervisory Board's activities, but also the remuneration of the Supervisory Board. Thus, from 2020, the annual general meetings of listed companies will have to deal with the issue of remuneration each year. The remuneration of the Supervisory Board also becomes an agenda item, at least every four years, within the framework of the remuneration system.

"So far, Supervisory Boards have been very reluctant to put their remuneration to the test more frequently. Now they are legally obliged to do so,” explains hkp/// group partner Regine Siepmann. "That alone will probably make us see more frequent adjustments in the remuneration of the Su-pervisory Board". The Corporate Governance Expert assumes that the new legislation will estab-lish more appropriate levels and systems for Supervisory Board remuneration, especially for com-panies outside the more exposed DAX environment.

Contact Thomas Müller, mobile: +49 176 100 88 237, email: thomas.mueller@hkp.com