hkp.com talks to hkp/// group compensation experts Dr. Pia Lünstroth and Jennifer S. Schulz about the latest developments in the salaries of executive and supervisory board chairs in the leading listed companies on the Austrian stock exchange (ATX).
Dr. Lünstroth, Ms. Schulz, the current ATX reporting season has been dominated by the European Shareholder Rights Directive implemented by the Austrian Stock Corporation Law Amendment Act (AktRÄG). What conclusions have you drawn with regard to executive and supervisory board pay reporting?
Dr. Pia Lünstroth: We’re seeing a whole series of positive developments, even if there is still room for improvement. For instance, reporting on compensation has improved considerably in comparison to previous years. International standards and/or commonplaces such as an indication of the year in which compensation components were received are now included in compensation reports.
Jennifer S. Schulz: The ATX has taken a significant step forward in terms of reporting, moving from bottom to mid-level of the rankings in international comparison.
What specific changes do you feel are still required in compensation reports?
Jennifer S. Schulz: We still see room for improvement when it comes to variable remuneration. It’s still rare to see target amounts indicated here, although these can often be derived from the significantly improved description of the compensation system in the corporate policy. Companies could make improvements here in the interests of easier readability and comparability, even this is not explicitly required by law.
Dr. Pia Lünstroth: Likewise, year-on-year comparisons are featured more frequently in compensation reporting for executive board members but are not consistently featured in all reports. But as said, we are seeing the beginning of a transformation: the contents of these compensation reports are clearer, more consistent, and easier to follow.
Is this positive development reflected in the shareholder voting results on compensation policy and pay at general meetings too?
Dr. Pia Lünstroth: For the most part, yes. The law requires a simple majority of the shareholders’ meeting. But, more significantly, investors require 70 to 80% votes in favor and, failing that, require amendments to be made. And, in light of these more rigorous criteria, we see clear outliers.
Are there any specific companies you would mention here?
Dr. Pia Lünstroth: Take Andritz and Erste Group for instance, they were heavily penalized on compensation policy at the 2020 shareholder meeting with 67% and 56% votes in favor, respectively. This year saw votes in favor exceed 90% in both companies. That figures!
Jennifer S. Schulz: Companies that are familiar with the demands of their investors, take these seriously and factor these into their compensation systems and reports are faring considerably better in shareholder votes than those who are still acting in the relatively carefree spirit of the times prior to the AktRÄG and continuing to push for as much discretionary leeway as they can.
Is that one of the central findings of your analysis?
Dr. Pia Lünstroth: Absolutely: entering into a professional dialog with investors ahead of time is generally conducive to a good voting result and a positive public image.
Let’s have a look at compensation levels: what are the findings here?
Jennifer S. Schulz: For one thing: CEOs that were in year-round office back in 2019 saw average renumeration consisting of basic pay and single- and multi-year variable salaries fall by roughly 11%. Salaries averaged 1.74 million euros. Leaving aside CEOs that departed mid-year or new entrants and therefore special payments such as severance payments or sign-on bonuses, the top spot for compensation in the ATX was held by the CEO of OMV as in the previous year. He received a salary of 3.9 million euros.
Dr. Pia Lünstroth: These are all values that are inconspicuous, even in international comparison, given the size of the company. What is more interesting from our perspective is that now, for the first time, differentiated compensation reporting has enabled a transparent pay for performance analysis. This provided confirmation that, in the pandemic year, compensation fell largely in line with company performance.
How have ATX companies responded to the COVID-19 pandemic in terms of compensation policy?
Dr. Pia Lünstroth: Coronavirus has definitely impacted CEO pay – and ATX companies are no different. The winners and losers varied depending on sector. CEOs in companies which were hard hit economically in particular received smaller bonuses as a result of a failure to meet targets. For instance, the CEOs of Lenzing and Uniqua did not receive any bonuses.
Jennifer S. Schulz: Specific cases of CEOs choosing to forgo pay in the ATX included Andritz and CA Immo. In these cases the CEOs opted to forgo parts of their basic pay and/or variable pay. At Wienerberger and Erste Group, variable pay claims were not paid out, and instead deferred, thereby setting a stronger incentive for long-term recovery.
Dr. Pia Lünstroth: On the whole, CEOs of listed companies opted to forgo pay to a greater extent in the international context than those in the ATX, thus reinforcing solidarity within the company.
Did supervisory board chairs in the ATX forgo pay?
Jennifer S. Schulz: No, there were no instances of supervisory boards waiving pay. There was however a considerable drop in variable pay – now only offered by three companies – and salaries on supervisory boards are considerably lower than those of the executive board in any case.
You're referring to the fact that supervisory board salaries remain low in ATX companies…
Jennifer S. Schulz: … and anything other than fair, especially given the range of duties, responsibility and work involved. While Austrian CEOs’ pay has now caught up with that of comparable German companies, supervisory board salaries are lagging well behind.
What consequences can we expect from this?
Dr. Pia Lünstroth: The average pay received by a supervisory board chair in an ATX company is roughly 107,000 euros, and the majority of companies offer only five-figure salaries. With compensation at those levels, ATX companies will find it difficult to attract the best executives for the crucial position of supervisory board chair, especially from overseas. International diversity will suffer as a result.
Jennifer S. Schulz: On the subject of diversity: nonetheless, the ATX stands out due to the fact that four supervisory board chair positions are held by women. That significantly outranks the top indices of other countries, especially Germany!