Commentary: German Execs Must Make Sacrifices, Too

They've gotten big raises lately -- not necessarily warranted by their companies' performance

At first, as management and labor sparred, it seemed that German workers, terrified of seeing their jobs exported abroad, would quickly sign on to a longer workweek for no extra pay. But the backlash was swift in coming. Everyone from union activists to conservative politicians began to question whether German execs earn too much. "Is this right?" screamed a July 22 headline in the daily Bild Zeitung, above a picture of DaimlerChrysler (DCX ) boss Jürgen E. Schrempp. The caption detailed Schrempp's pay: an estimated 435,000 euros a month.

Is this right? Good question. German managers have gotten hefty raises of late, based on the argument that Germany Inc. needs top talent. But while DaimlerChrysler's executive board earned a combined $49 million last year -- a record both for the company and the nation -- it presided over a drastic 90% decline in the company's net profit. "Wages are being set according to standards from Eastern Europe, while manager pay is based on levels in America," fumes a worker outside a Mercedes plant near Stuttgart.

In reality, German executives are among the lowest paid in Europe. It's also true that members of DaimlerChrysler's management board agreed in July to take a 10% pay cut in a show of solidarity with workers in the Stuttgart area. But the concession by management came only after the villagers were brandishing torches outside the drawbridge.


Besides, German business still has a long way to go before its disclosure and accountability standards meet international norms. Only a third of companies in the DAX index adhere to voluntary governance guidelines and reveal the individual compensation of top executives (management boards must reveal their compensation as a group, but not for individuals). Government should make such disclosure mandatory.

Accountability is another area where Germany needs work. Daimler's supervisory board voted to extend Schrempp's contract at the same time shareholders were calling for his head. One sensible solution would be to allow investors to vote on executive pay packages. Even a nonbinding vote would act as a reality check for supervisory boards.

Finally, management should collect performance bonuses only when they truly perform. Too often executives cash in regardless of how well the company does. "If a company is successful, it's the management. If it's not successful, they blame it on the price of oil or something else," says Michael H. Kramarsch, managing partner for Germany at human resources consultant Towers Perrin. Let German chief executives get fat paychecks -- as soon as they deserve them.

By Jack Ewing

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