Was the remuneration earned?

New board of management remuneration requirements – what companies urgently need to change

CONTACT LN SUCHE
Stern Stewart & CO. GmbH
Salvatorplatz 4
80333 Munich

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MANAGEMENT SUMMARY

What is reasonable remuneration for management boards? How high does the variable, performance-based component of the overall remuneration need to be? Should managers be held responsible for wrong decisions? Or should bonuses simply be done away with altogether?

Despite the new statutory regulations, the list of questions concerning the correct approach to management remuneration is not only endless, but also effectively makes a mockery of the issue. The debate takes place on a level that simply ignores the principles of the market economy that stipulate that whoever performs a service should also be paid appropriately.

The notion that the company’s top performers should somehow be punished is both wrong and dangerous. That is why it is so important to now realign management remuneration and to establish the right strategy. Instead of considering doing away with bonuses, the discussion should concentrate on how performance orientation can be effectively anchored within the company management.

In the new German Appropriateness of Management Board Remuneration Act (VorstAG) and the Minimum Requirements for Risk Management (MaRisk), the legislators have set out guidelines which must be followed. The appropriateness of remuneration has the same importance as the maintenance of performance. To this end, it is first necessary to clarify how performance can be accurately measured. But above all, companies should now take the opportunity to consistently involve their managers in the opportunities and the risks associated with their actions. Only then will the incentives provided truly contribute to business success.


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