- CEO compensation in top European companies falls by 3.7%, while that of Chairmen of the Supervisory Board declined by 3%
- The top places in the compensation league table continue to be occupied by companies that are headquartered in Switzerland and in the UK and are highest in the healthcare/pharma and consumer goods industries
- hkp/// group analysis Executive and Non-Executive Director Compensation in Europe 2016
Frankfurt/Zurich, June 13, 2017. CEO compensation in Europe’s leading listed companies (STOXX companies) fell by 3.7% to an average of EUR 6 million in the financial year 2016. In the previous year, it had peaked at EUR 6.3 million – the highest level since the financial crisis.
While fixed compensation and variable long-term compensation remained constant year-on-year, this year’s fall in total compensation was the result of a decrease in short-term variable compensation (bonuses), with the average annual bonus of CEOs in STOXX companies falling by around 13%.
The compensation of Chairmen of the Boards of Europe’s top companies also saw a decline in average total compensation of around 3%. The average absolute level currently amounts to EUR 0.9 million.
Executives from Swiss and UK headquartered companies occupied the highest positions in the league tables. In terms of industry, the highest compensation levels were found in the health (pharmaceuticals/healthcare) and consumer goods sectors. CEO compensation in financial services rose somewhat, but remained below average.
These are the findings of the Executive and Non-Executive Director Compensation in Europe 2016 analysis conducted by the hkp/// group management consultancy. The analysis is based on the compensation disclosures of top executives in the most recent annual reports of companies listed in the STOXX Europe 50® and EURO STOXX 50®.
“In 2016, we saw a slight decline in average compensation on the one hand, and a moderate increase in corporate profits on the other. Nonetheless, the overall conclusion is that, with few exceptions the pay-for-performance principle is well established. Anything else would have been surprising, as it is no longer possible to escape the pressure from investors and the general public, especially when it comes to the compensation of top executives,” explains hkp/// group Managing Partner Michael H. Kramarsch.
CEO compensation: STOXX companies considerably below US levels
According to the latest hkp/// group analysis, the average direct compensation of CEOs (excluding pension and fringe benefits) in the STOXX companies amounts to approximately EUR 6 million. However, the top spots in the compensation table significantly exceed this average. The list is headed by the CEOs of Roche (EUR 13.2 million), UBS (EUR 12.3 million) and SAP (EUR 11.9 million).
By contrast, the CEOs of ING Groep and Orange saw the lowest compensation, at around EUR 2 million and EUR 1.9 million respectively. Therefore, there is a sevenfold difference between the highest and lowest levels.
| Top 10 compensation ranking of CEOs of STOXX companies 2016
| 1 | Roche | CH | Dr. Severin Schwan | 13‘240
| 2 | UBS | CH | Sergio P. Ermotti | 12‘292
| 3 | SAP | D | Bill McDermott | 11‘890
| 4 | Novartis | CH | Joseph Jimenez | 10‘044
| 5 | British American Tobacco | GB | Nicandro Durante | 9‘661
| 6 | GlaxoSmithKline | GB | Sir Andrew Witty | 9‘542
| 7 | L'Oréal | F | Jean-Paul Agon | 9‘130
| 8 | BP | GB | Bob Dudley | 8‘931
| 9 | Royal Dutch Shell | GB | Ben van Beurden | 8‘824
| 10 | Nestlé | CH | Paul Bulcke | 8‘767
Fig. 1: Top 10 compensation ranking of CEOs of STOXX companies 2016 (in EUR 000)
A comparison with the US market shows that European CEO compensation is significantly lower as average direct compensation for CEOs of Dow Jones Industrial companies amounts to EUR 16.8 million. At EUR 42 million, Nike’s CEO receives the highest compensation, while at the bottom of the list, Apple’s CEO receives EUR 7.5 million in direct compensation.
The CEOs of the STOXX companies in the consumer goods industry saw an average fall of around 17% in their 2016 compensation. However, the consumer goods industry still has one of the most attractive compensation levels after the pharmaceuticals/healthcare sector. Last year’s decrease in compensation for CEOs in financial services has come to a halt, with average direct compensation increasing by around 8% in 2016.
“The size of the company, the industry and the location of the Group’s headquarters are prime factors when it comes to the amount of compensation CEOs receive. In addition, a company’s global reach and the level of competition it faces play an important role. As a result, we see significantly higher compensation in the consumer goods industry and in healthcare compared to other industries in Europe,” Barbara Seta, Senior Partner hkp/// group, explains. She highlights that the still high intensity of regulation in financial services means that compensation levels of top executives in this sector is not expected to change dramatically in the medium term.
No surprise: Top compensation spots for Chairmen of the Board of Directors traditionally occupied by Swiss companies
The average compensation of Chairmen of the Board in STOXX companies was around EUR 0.89 million in 2016. This represents a decline of approximately 3% since last year.
As in previous years, Chairmen of the Supervisory Boards of Swiss companies continue to be significantly over-represented at the top of the compensation table: In 2016, these were the Chairmen of the Boards of Nestlé (EUR 5.3 million), UBS (EUR 5.2 million), Roche (EUR 4.1 million) and Novartis (EUR 3.5 million). The highest ranking non-Swiss chairman (Danone, EUR 2 million) came in fifth place.
| Top 10 compensation ranking of Chairmen of the Board of STOXX companies 2016
| 1 | Nestlé | CH | Peter Brabeck-Letmathe | 5‘350
| 2 | UBS | CH | Prof. Dr. Dr. h.c. Dr. h.c. Axel A. Weber | 5‘229
| 3 | Roche | CH | Dr. Christoph Franz | 4‘128
| 4 | Novartis | CH | PhD Joerg Reinhardt | 3‘486
| 5 | Danone | F | Franck Riboud | 2‘000
| 6 | Syngenta | CH | Michael Demaré | 1‘606
| 7 | Zurich Insurance | CH | Tom de Swaan | 1‘376
| 8 | ABB | CH | Peter R. Voser | 1‘101
| 9 | Barclays | GB | John McFarlane | 979
| 10 | BP | GB | Carl-Henric Svanberg | 961
Fig. 2: Top 10 compensation ranking of Chairmen of the Board of STOXX companies 2016 (in EUR 000)
“The top ranking of Swiss-headquartered companies is due to the statutory responsibilities and role of Swiss Supervisory Boards and their Chairmen, which are full-time roles with broad responsibilities. In comparison, in other European countries the role exercised by Supervisory Board members and the Chairmen of the Board is usually performed as a part-time role and comes with fewer responsibilities,” Barbara Seta, hkp/// group Senior Partner, explains.
Taking the different governance models into account, the equivalent US levels correspond to the European average. The highest earning non-executive Board member in the Dow Jones Industrial is the Chairman of Microsoft at EUR 0.6 million, while the average for all companies in the index amounts to EUR 0.4 million.
While fixed compensation and variable long-term compensation remained constant year-on-year, this year’s fall in total compensation was the result of a decrease in short-term variable compensation (bonuses), with the average annual bonus of CEOs in STOXX companies falling by around 13%.
The compensation of Chairmen of the Boards of Europe’s top companies also saw a decline in average total compensation of around 3%. The average absolute level currently amounts to EUR 0.9 million.
Executives from Swiss and UK headquartered companies occupied the highest positions in the league tables. In terms of industry, the highest compensation levels were found in the health (pharmaceuticals/healthcare) and consumer goods sectors. CEO compensation in financial services rose somewhat, but remained below average.
These are the findings of the Executive and Non-Executive Director Compensation in Europe 2016 analysis conducted by the hkp/// group management consultancy. The analysis is based on the compensation disclosures of top executives in the most recent annual reports of companies listed in the STOXX Europe 50® and EURO STOXX 50®.
“In 2016, we saw a slight decline in average compensation on the one hand, and a moderate increase in corporate profits on the other. Nonetheless, the overall conclusion is that, with few exceptions the pay-for-performance principle is well established. Anything else would have been surprising, as it is no longer possible to escape the pressure from investors and the general public, especially when it comes to the compensation of top executives,” explains hkp/// group Managing Partner Michael H. Kramarsch.
CEO compensation: STOXX companies considerably below US levels
According to the latest hkp/// group analysis, the average direct compensation of CEOs (excluding pension and fringe benefits) in the STOXX companies amounts to approximately EUR 6 million. However, the top spots in the compensation table significantly exceed this average. The list is headed by the CEOs of Roche (EUR 13.2 million), UBS (EUR 12.3 million) and SAP (EUR 11.9 million).
By contrast, the CEOs of ING Groep and Orange saw the lowest compensation, at around EUR 2 million and EUR 1.9 million respectively. Therefore, there is a sevenfold difference between the highest and lowest levels.
| Top 10 compensation ranking of CEOs of STOXX companies 2016
| 1 | Roche | CH | Dr. Severin Schwan | 13‘240
| 2 | UBS | CH | Sergio P. Ermotti | 12‘292
| 3 | SAP | D | Bill McDermott | 11‘890
| 4 | Novartis | CH | Joseph Jimenez | 10‘044
| 5 | British American Tobacco | GB | Nicandro Durante | 9‘661
| 6 | GlaxoSmithKline | GB | Sir Andrew Witty | 9‘542
| 7 | L'Oréal | F | Jean-Paul Agon | 9‘130
| 8 | BP | GB | Bob Dudley | 8‘931
| 9 | Royal Dutch Shell | GB | Ben van Beurden | 8‘824
| 10 | Nestlé | CH | Paul Bulcke | 8‘767
Fig. 1: Top 10 compensation ranking of CEOs of STOXX companies 2016 (in EUR 000)
A comparison with the US market shows that European CEO compensation is significantly lower as average direct compensation for CEOs of Dow Jones Industrial companies amounts to EUR 16.8 million. At EUR 42 million, Nike’s CEO receives the highest compensation, while at the bottom of the list, Apple’s CEO receives EUR 7.5 million in direct compensation.
The CEOs of the STOXX companies in the consumer goods industry saw an average fall of around 17% in their 2016 compensation. However, the consumer goods industry still has one of the most attractive compensation levels after the pharmaceuticals/healthcare sector. Last year’s decrease in compensation for CEOs in financial services has come to a halt, with average direct compensation increasing by around 8% in 2016.
“The size of the company, the industry and the location of the Group’s headquarters are prime factors when it comes to the amount of compensation CEOs receive. In addition, a company’s global reach and the level of competition it faces play an important role. As a result, we see significantly higher compensation in the consumer goods industry and in healthcare compared to other industries in Europe,” Barbara Seta, Senior Partner hkp/// group, explains. She highlights that the still high intensity of regulation in financial services means that compensation levels of top executives in this sector is not expected to change dramatically in the medium term.
No surprise: Top compensation spots for Chairmen of the Board of Directors traditionally occupied by Swiss companies
The average compensation of Chairmen of the Board in STOXX companies was around EUR 0.89 million in 2016. This represents a decline of approximately 3% since last year.
As in previous years, Chairmen of the Supervisory Boards of Swiss companies continue to be significantly over-represented at the top of the compensation table: In 2016, these were the Chairmen of the Boards of Nestlé (EUR 5.3 million), UBS (EUR 5.2 million), Roche (EUR 4.1 million) and Novartis (EUR 3.5 million). The highest ranking non-Swiss chairman (Danone, EUR 2 million) came in fifth place.
| Top 10 compensation ranking of Chairmen of the Board of STOXX companies 2016
| 1 | Nestlé | CH | Peter Brabeck-Letmathe | 5‘350
| 2 | UBS | CH | Prof. Dr. Dr. h.c. Dr. h.c. Axel A. Weber | 5‘229
| 3 | Roche | CH | Dr. Christoph Franz | 4‘128
| 4 | Novartis | CH | PhD Joerg Reinhardt | 3‘486
| 5 | Danone | F | Franck Riboud | 2‘000
| 6 | Syngenta | CH | Michael Demaré | 1‘606
| 7 | Zurich Insurance | CH | Tom de Swaan | 1‘376
| 8 | ABB | CH | Peter R. Voser | 1‘101
| 9 | Barclays | GB | John McFarlane | 979
| 10 | BP | GB | Carl-Henric Svanberg | 961
Fig. 2: Top 10 compensation ranking of Chairmen of the Board of STOXX companies 2016 (in EUR 000)
“The top ranking of Swiss-headquartered companies is due to the statutory responsibilities and role of Swiss Supervisory Boards and their Chairmen, which are full-time roles with broad responsibilities. In comparison, in other European countries the role exercised by Supervisory Board members and the Chairmen of the Board is usually performed as a part-time role and comes with fewer responsibilities,” Barbara Seta, hkp/// group Senior Partner, explains.
Taking the different governance models into account, the equivalent US levels correspond to the European average. The highest earning non-executive Board member in the Dow Jones Industrial is the Chairman of Microsoft at EUR 0.6 million, while the average for all companies in the index amounts to EUR 0.4 million.
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