Greed, avarice, and envy - Limitation of executive salaries

Greed, Greed, and Envy - Limitation of Manager Salaries - by Richard Schütze

"In Germany, vice is unknown; only greed, greed, and envy have been known here for some time." With this saying, the emotionally and calculatedly driven debate on limiting manager salaries can be aptly summarized. Imagination and emotions are stirred when an employee receives a salary well over 10 million euros per year as a basic salary, along with luxurious company cars, allowances, stock options, and bonuses. While it is noticeable that sports and entertainment stars, television personalities, star architects and conductors, as well as opera singers, also receive astronomical fees, it does not weigh as heavily. It is graciously conceded that stars and celebrities fill stadiums and halls or generate their money through ratings, user clicks, and sold copies, mostly recouping their earnings and occasionally risking life and limb as race car drivers, extreme athletes, and performers. It seems different for highly paid managers who are perceived as privileged members of an exclusive caste. While the career of an entertainer could end tomorrow, a manager fired for incompetence or worse often receives a gigantic severance package – so goes the common opinion. Not to mention pension benefits and retirement payments, which are said to amount to 12 million euros alone in the case of former constitutional judge and SPD Minister of Justice Christine Hohmann-Dennhardt. The pension entitlements of former VW CEO Martin Winterkorn, despite the Diesel scandal, are also considered a prime example of this kind of self-service through complicitly cooperating bodies, amounting to 28 million euros. The fact that Hohmann-Dennhardt also held the executive department of "Integrity and Law" brings not only the Volkswagen public but also the public at large to a boil; a highly provocative topic. A Matter of Decency, Dignity, and Justice Ironically, the SPD and its new frontman Martin Schulz are now catching the Union parties off guard with their draft law to restrict high manager salaries. Including bonuses, the total compensation of an executive should only be tax-deductible up to a limit of 500,000 euros in the future. The Social Democrats cleverly pick up an old proposal from the Union and the "Bund Katholischer Unternehmer" (BKU) to strengthen the rights of shareholders and the general meeting in determining manager salaries. A maximum ratio between the average earnings of employees in a company and the compensation of executives should be defined. According to Ulrich Hocker, President of the German Shareholders' Association, a manager should not earn more than 50 times the earnings of their employees to maintain a "healthy relationship" and "social peace". The SPD even seems to be picking up a demand from the BKU in 2012 regarding the tightening of personal liability of executives in companies to restore more significance to the liability principle. "The decoupling of ownership and responsibility" is "a central cause of why the financial crisis of recent years was so fundamental and so difficult to control," says the BKU chairwoman and CDU member of parliament Marie-Luise Dött, touching on a sore point. In publicly traded companies with dispersed ownership, ownership and responsibility do not lie in one hand. This favors risky and short-term decisions that may not be in the interest of the liable owners. Accordingly, the SPD demands a legal right to reduce or reclaim executive salaries and pensions in case of poor performance or misconduct. Indeed, a medium-sized family entrepreneur often risks their existence and private assets for their company. The decision-making powers and opportunities resulting from ownership are directly linked to the responsibility and liability for risks. Consequently, a successful owner-entrepreneur who lives in a luxurious villa and drives a fancy car is met with less envy and resentment. Even Uli Hoeneß, who dedicates himself to 'his' FC Bayern as well as his own sausage factory, receives a second chance after serving his tax sins and is once again carried on the shoulders by Bayern fans. Legality versus Legitimacy However, for someone who primarily wields the scepter with other people's money, seemingly largely freed from personal risks and "only" as an employee, envy and resentment arise, even if they have to make complex decisions daily. References to the employment contract, freedom of contract, and the powers of bodies such as supervisory boards in determining salaries hardly justify. Even the mention of market value and the fact that a top manager is usually appointed for only three to five years and only a few managers earn more than the newly defined upper limit of 10 million euros per year do not help escape the image trap. Constitutional questions or potential double taxation also play a minor role. Parts of the Union desperately argue that international corporations would no longer establish their European headquarters in Germany. Chancellor Angela Merkel and Union parliamentary group leader Kauder, however, have given up the resistance. Schulz has successfully copied Merkel's style of governance: squeezing a few contents from the Union's depot into the SPD corset, and the electorate overlooks the fact that the SPD, through the unions in co-determined stock corporations, is also partly responsible for high manager salaries. Now, whoever can is trying to save themselves from public wrath. A glimmer of hope is solely the proposal from Deutsche Bank that in future, the reputation of a company should also play a role in bonus payments. Somewhere, reason seems to return. The author is a lawyer, political consultant, and Chairman of the Bundes Katholischer Unternehmer (BKU) of the Diocesan Group Berlin-Brandenburg in the Archdiocese of Berlin For more information on the topic of manager salaries, visit: http://www.trainers-excellence.de/redner/ra-richard-schuetze.html