The real estate industry is facing major challenges in a wide variety of different ways. Joachim Kayser, industry expert and former Senior Partner of the hkp/// group, is one of the authors of the new guide entitled “Sustainable Management and Compensation Systems” issued by the Institute for Corporate Governance in the German Real Estate Industry (ICG). A discussion on backgrounds, solutions and the action that needs to be taken.

Mr. Kayser, what was the decisive factor for the initiative launched by the Institute for Corporate Governance in the German Real Estate Industry (ICG) in relation to the guide for sustainable management compensation in the real estate industry?
Joachim Kayser: The real estate industry is currently facing a number of challenges, one of which is directors’ and general managers’ compensation. Often, the systems aren’t designed sustainably, and the compensation levels don’t yet reflect the sizes that companies have grown to and the relevant tasks or areas of responsibility shouldered by the top managers.

Is this a purely German phenomenon?
Joachim Kayser:
The industry is under great pressure to change internationally. For example, influential US entrepreneurs recently called for a shift from the pure shareholder principle and a stronger focus on stakeholder value as a viable approach to corporate governance. The ICG has been highly committed to developing industry-focused ideas for improving corporate management for a long time now. The issue of compensation is a central aspect of this.

Isn’t Germany already in a relatively good position with regard to the involvement of employee representatives in relevant decisions, the consideration of customer and employee satisfaction in compensation systems, and so on?
Joachim Kayser: That’s true, yes, but good isn’t always good enough. The initiative launched by the Institute for Corporate Governance in the German Real Estate Industry sees itself as a driving force for acting even more consistently in this regard and anchoring the issue of sustainability even more broadly and stringently in compensation. And, last but not least, the industry wants to improve its position in good time so that lawmakers don’t act as regulators, as they do in the financial sector.

What exact indications does the ICG guide provide with regard to executive compensation?
Joachim Kayser: The guide is a standard for practitioners, not a theorizing document. It provides direction relating to the question of how companies can successfully anchor sustainable action – ecological, economic, and social action – in top management compensation. Compensation models tailored to the business models, for example, are an important building block in this respect.

The term “real estate industry” suggests a picture that doesn’t exist even in this way… You don’t seriously want to use the guide to tar all companies with the same brush?
Joachim Kayser: The industry is certainly extremely diverse. And that’s why the ICG guide also assumes that each company must define for itself what business area-specific requirements it is subject to, where it stands on the subject of sustainability, and what goals can be specifically achieved. These cornerstones look fundamentally different for a project developer than they do for a real estate manager or an investor. Everyone needs to define their own personal position.

You’d mentioned that there’s still need for action when it comes to the topic of compensation…
Joachim Kayser: We often find that performance-tied compensation is too low compared to the market, because companies have enjoyed strong growth, and the relevant adjustments have not been made or have only been made hesitantly. In contrast, performance-based payment has already been accomplished in most cases. However, in the vast majority of cases, the incentives are aimed at achieving short-term goals. In contrast, sustainability has rarely been compensation’s guiding principle – with the exception of listed companies, which have already achieved this according to the law and the German Corporate Governance Code.

Do you believe that this is contradictory to business models’ long-term focus in the industry?
Joachim Kayser: Indeed it is. The real estate industry is predominantly focused on providing services over several years. An activity’s overall success can often only be determined after several years. Those who take performance-related compensation seriously should therefore primarily measure the level of compensation based on sustainable success.

Investor requirements are becoming ever more important, what with the implementation of the European Shareholder Rights Directive. When it comes to compensation, this means consistent pay for performance. What do you, as a market expert, believe is happening with regard to how compensation systems are structured in this respect?
Joachim Kayser:
Here, the focus is on listed companies in particular, and a great deal of progress has been made in recent years. Transparency requirements and investor pressure have translated into significant increases in the professionalism of compensation management and, therefore, of the systems for director compensation too. In addition to investor requirements, listed companies in particular must constantly face up to new regulatory and legislative requirements. For example, multi-year compensation terms are currently being increased to four years, and compensation is being more share-oriented.

But very few companies operating in the industry are listed on the stock exchange. What about the broad need for action?
Joachim Kayser:
Interestingly enough, investors in non-listed companies are also interested in the same development. They increasingly want to invest in companies and their projects that, for example, have what are known as “environment, social and governance” (ESG) goals as a benchmark for director compensation. In other words, in companies that deal with employee concerns, ecological aspects, and good governance.

Does top management even need variable compensation incentives? Wouldn’t a fixed salary be sufficient?
Joachim Kayser:
Compensation always reflects the corporate culture and business model, as well as the corporate goals based on them. If you want to ensure that these goals are pursued and achieved in line with your strategy, then you need suitable incentives. Last but not least, a variable component also ensures that top management has “skin in the game”, so to speak. In other words, it sees the results of its actions reflected in its own compensation, for better or for worse. The ICG guide thus also recommends that, at management level, at least one annual salary should be exposed to the risk of performance fluctuations – and that the variable salary can drop to zero in the worst-case scenario.

Are there industry-specific incentives?
Joachim Kayser:
Real estate is a special asset, which is why there are some special features in the key figures relevant to compensation that should primarily reflect long-term goals. Here, for example, I see long-term performance as a key parameter.

To what extent do you believe incentives for high rents are justifiable – also against the backdrop of the current social debate?
Joachim Kayser:
Both housing companies and their service providers are indispensable for the construction and management of affordable housing in our social system. Politicians tend to forget that in public debates. Driven by populist tendencies, they often propagate proposals up to expropriation. When experts and managers then raise a warning finger to remind the public of constitutional conformity, general cost-relatedness, and jobs, they become fair game of public opinion. 

But aren’t housing shortages and high rents also consequences of misguided incentives?
Joachim Kayser:
No! Housing shortages are usually caused by bad political decisions regarding the provision of building land and construction work regulations. If, for instance, the Federal State of Berlin sells its criminally run-down portfolio of municipal real estate to private investors, demonizes the same investors after they completely renovate this portfolio and – supported by sympathy on the streets – even threatens them with expropriation, then such behavior is fundamentally contradictory to our constitution.

Allow me to put the question another way. How do tenants benefit from new management compensation systems?
Joachim Kayser:
Long-term returns must be achieved in sustainable compensation systems. Tenants who can continuously afford housing are the only way to achieve this. The real estate industry also has apartment buyers, commercial users, investors and society as customers, for whom it provides considerable benefits. Also with regard to compensation, it’s a matter of taxing an extremely wide variety of interests in a balanced fashion. The times of pure shareholder management are in the past. The crux of the matter is meeting stakeholder interests, also through representing them in compensation systems.

You mentioned the “skin in the game” principle. How do you feel about employees sharing in the company’s success, but above all else in their own employer’s capital?
Joachim Kayser:
In the interests of having a uniform strategic focus for everyone, we strongly advocate consistent principles in compensation. Fundamental principles should be reflected from the top of the company to the lower hierarchies. Sharing is one of these principles. This is an excellent corporate and socio-political incentive and sharing tool for all employees. If your own money is being used, and you’re not just working for your bonus, this will have a completely different effect on the decisions you make and how you behave. At the same time, you’re building up assets for your retirement.

Listed companies have a clear advantage in this respect…
Joachim Kayser:
No. Employee sharing can be represented in all legal entities. Listed companies seem to have it easier because of shares. But employees can also share in the capital in other corporate forms. There are already many examples of this. What’s more, lawmakers are in the process of doubling the individual tax allowance to €720 per year. Even if this initiative doesn’t quite turn out to be a resounding success, companies should take advantage of the improved framework.
Mr. Kayser, thank you for taking part in this interview.

The “Sustainable Management and Compensation Systems” guide published by the Institute for Corporate Governance in the German Real Estate Industry (ICG) is available at and


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