Monday, February 11, 2013

Changes Proposed to German Corporate Governance Code Would Enhance Transparency of Management Remuneration

The Government Commission on the German Corporate Governance Code has proposed a number of changes to the Code to enhance the transparency and understanding of management remuneration. Specifically, the Commission is recommending that a cap be placed on remuneration, both in terms of its total amount as well as in terms of its individual components. In addition, the transparency and traceability of supervisory board remuneration decisions would be enhanced by supplementing the criteria that have already been outlined and have to be taken into account.
It is suggested, for example, that when defining a remuneration structure the supervisory board should consider the relationship between the remuneration of the management board as well as that of senior management and total staff, also in terms of its development over time. Within this context, a new recommendation should be incorporated stating that the supervisory board defines the targeted level of retirement provision for the management board and factors in the annual and long-term expense for the company arising from this.
In order to improve comparability over time and with other companies, both for the supervisory board and for the general public, the Commission recommends that important facts and figures on management board remuneration be prepared in a standardized fashion and that use be made of tables. Any burden of preparing the new tables is ameliorated by the fact that the data to be included in the proposed tables is already available to companies and is already published in one form or another to a large extent.
In the Commission’s view, consolidating and standardizing the way the data is presented will provide a better overview and improve comparability. In view of the potential organizational expense involved in the conversion, the recommendation regarding information in the remuneration report and the suggestion on the use of tables at companies would only be implemented beginning in 2014.