Shining a light into Germany's boardrooms

2005

The days of pay secrecy in Germany's boardrooms could soon be over after Chancellor Gerhard Schröder approved new legislation that will require public companies to disclose the remuneration of their senior executives.

Germany companies have hitherto been required only to state the amount paid to their entire board and many companies have closely guarded the sums paid to individual executives.

"The law aims to strengthen shareholders' controlling rights," said Brigitte Zypries, the Minister of Justice. "It's about control via transparency."

The legislation will require that individual salary and bonuses are disclosed to shareholders but stops short of mandating the sort of detailed breakdown of stock options or stock performance versus that of competitors that is required under U.S. law.

The law was devised after many of Germany's largest firms, including DaimlerChrysler, BASF and Porsche, blocked moves to publish remuneration information voluntarily.

Only 19 out of Germany's top 30 firms agreed to comply with the requirements, with many smaller companies absolutely opposed to pay transparency

Porsche has claimed that the law will be unconstitutional, adding "The only thing relevant to shareholders is whether or not executive salaries are commensurate with the performance of the company.''

The CEO of insurer Munich Re also claimed that the publication of executive's pay aould attract kidnappers. "Some people may get the wrong ideas when you have kids and your pay is being published twice a year,'' Nikolaus von Bomhard said in March.

Pressure for greater disclosure has been growing ever since prosecutors accused board members of mobile phone company Mannesmann AG of defrauding shareholders after they awarded millions of euros in severance packages to executives after the firm was taken over by Vodafone.

But while the new law has been welcomed by shareholder groups, Germany's business leaders are up in arms.

"I was always taught that if I knew nothing about football, I should not criticise the coach. The same should apply to politicians without expertise contributing to the investment."