The Board Index analyses management board compensation as disclosed in 2019 annual reports. In 2018 a non-governmental working party — consisting of supervisory board chairs, investors and governance experts — published guidelines intended to modernise remuneration structures at management board level. The guidelines focus on sustainability, transparency and reducing complexity, as well as a personal investment in company shares by management board members. These elements are increasingly reflected in compensation systems.
Fixed compensation
The growth of fixed compensation has slowed considerably since the 2016 analysis. After a sharp average increase reflected in the 2014 and 2016 Board Indexes, in recent years fixed compensation has risen only by around 4% or 6% on average (based on data drawn from 2013, 2015, 2017 and 2019 annual reports).
Growth of fixed compensation (€)
|
2014 |
growth (%) |
2016 |
growth (%) |
2018 |
growth (%) |
2020 |
| Management board member |
505.857 |
19,1 |
602.404 |
3,5 |
623.639 |
4,5 |
651.720 |
| CEO |
959.368 |
12,9 |
1.083.166 |
3,6 |
1.122.212 |
5,8 |
1.187.278 |
Performance-related compensation
More than three-quarters of companies (2018: 70%) grant two components of performance-related compensation; only 19% offer three components. Most companies provide short-term and long-term awards, which are clearly differentiated without any overlap. Linking executive compensation to sustainability targets is widely seen among short-term incentives; among long-term incentives it is standard.
- 50% (2018: 46%) of companies under review have designed short-term awards on a sustainable basis, such as mid-term performance periods, deferrals or claw-back clauses. All companies that have supplied details of their short-term components pay cash, in part or in total.
- Long-term awards are clearly geared to sustainability. A three- to five-year performance period is common. Capital market goals form the dominant assessment criterion — just under 80% of the companies include these. Long-term components are mostly share-based (75%) with virtual shares, with cash settlement prevailing.
- The proportion of companies that apply share ownership guidelines to management board compensation — either as a separate agreement or an integral part of performance-related compensation — has risen considerably to 54%, from 40% in 2018.
The importance of qualitative criteria in performance evaluations continues to grow, especially relating to short-term targets. 47% of companies (2018: 43%) include, for example, employee and customer satisfaction, safety and accident prevention or compliance. Only 19% of companies take elements such as these into account when reviewing long-term expectations.