German Corporate Governance Laws: More Down-To-Earth CEO Pay Plans

By  Tree huggers and power suits are finding some surprising common ground.

When do societies start taking a new idea seriously? Easy. New ideas gain traction when starkly different sorts of people champion them.

This process is beginning to unfold with the notion of a “maximum wage,” the idea that we should limit the income of our society’s most exalted executives to a specific multiple of the income that ordinary mortals earn. We’re now seeing calls for income caps from two camps about as different as they could be.

The first came last month with the publication of the new environmental movement manifesto, Enough Is Enough: Building a Sustainable Economy in a World of Finite Resources. The authors — Oregon conservationist Rob Dietz and UK ecological economist Dan O’Neill — have become familiar fixtures at confabs frequented by scruffy tree huggers.

But you won’t find anything the least bit scruffy about the German Corporate Governance Commission.

The executives, corporate directors, and economists on this panel hobnob with Germany’s most famous power suits.

Indeed, they don’t just hobnob. They define the official national code of conduct that determines how German corporations are expected to behave.

All major German corporations — from Adidas and Bayer to Siemens and Volkswagen — subscribe to this code. Under Germany’s Stock Corporation Act, these companies must declare every year that they remain in code compliance.

The Commission recently released its latest code amendments. Included in them: a mandate that all German publicly traded firms place a cap on executive compensation, “both in terms of its total amount as well as in terms of its individual components.”

This bold recommendation comes on the heels of growing German public outrage over rising executive pay.

This public sentiment, Commission chair Klaus-Peter Mueller acknowledges, “has not been without influence on the commission.”

The new German code amendments — set to be finalized in May — leave the specific executive pay maximum up to each corporation. But Commission members made it clear last week that current pay levels have soared too high.

Highest-Paid German Executive

Martin Winterkorn Highest paid German executive

Martin Winterkorn – Highest paid German executive

Germany’s highest-paid CEO, Volkswagen’s Martin Winterkorn, collected $23.7 million in 2011.

Here in the United States, pay packages for top executives clock in at many multiples of that. Apple CEO Timothy D. Cook, for example, raked in $378 million in 2011, and Winterkorn wouldn’t even rank among America’s top 10 CEO earners.

Germany’s top corporations, the German Corporate Governance Commission adds, should set the soon-to-be-required new executive pay maximums in relation to the rewardsthat go to ordinary employees.

Some significant industrial enterprises in the world today, Dietz and O’Neill point out inEnough Is Enough, are already doing just that. In Spain, the manufacturing and retail enterprises that belong to the Mondragon cooperative network limit top pay to three to nine times worker compensation.

“Maximum pay differentials,” Dietz and O’Neill contend, need to become the worldwide standard. The two see these differentials as an essential weapon against growing global inequality. And they see the struggle against inequality as a prime key to the struggle for an environmentally sustainable Earth.

“Large income gaps,” the pair note, “lead to unhealthy status competition and consumption of materials and energy beyond what’s necessary to meet people’s needs.”

Humanity, they point out, is already “consuming resources and emitting wastes” at a rate “50 percent faster than what’s sustainable.” We’ll never end the “overconsumption of nonrenewable resources” and the “over exploitation of renewable resources” as long as our economy “forever chases more.”

In the end, Dietz and O’Neill and Germany’s Corporate Governance Commission seem to have the same goal in mind: good stewardship.

Excessive executive pay, both camps understand, undercuts that good stewardship. Outrageously high executive pay gives powerful corporate executives an incentive to behave outrageously — within their enterprises and toward our Earth — as they chase after ever-greater rewards.

OtherWords columnist Sam Pizzigati is an Institute for Policy Studies associate fellow. His latest book is The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class. OtherWords.org

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