Remuneration of managing board members
By Martin Reufels
Heuking Kühn Lüer Wojtek
On 5 August 2009, the law concerning the appropriateness of the remuneration of managing board members (“Gesetz zur Angemessenheit der Vorstandsvergütung” or “VorstAG”), changing the German Stock Companies Act (“AktG”) and the Commercial Code, entered into force.
According to the German government, the financial crisis showed that the current remuneration scheme did provide the wrong incentives for the managing board by focusing too much on short-term goals instead of a sustainable corporate development. Therefore, the VorstAG provides for more rigorous rules concerning the establishing and reduction of the remuneration, the responsibility of the board of supervisors, and the conditions of D&O insurances.
The performance of the member of the managing board has been added as criterion regarding the appropriateness of the remuneration. Further, the remuneration shall not exceed the usual scope in the relevant sector and country without specific reasons. The board of supervisors must adjust the remuneration scheme especially regarding variable elements of the remuneration in order to achieve a sustainable corporate development by implementing a multi-year assessment basis as well as caps for extraordinary developments. Furthermore, the conditions for the reduction of the remuneration according to sec. 87 (2) AktG have been eased, and the scope of application has been widened to pension payments. Moreover, the board of supervisors now must (instead of may) reduce the remuneration if the economic situation of the company deteriorates and it would be “unfair” to continue to grant the previous remuneration. The general shareholder meeting has been given the right to express its disapproval with the remuneration scheme (see sec. 120 (4) AktG).
The increased responsibility of the board of supervisors is expressed in several ways: According to sec. 107 (3) AktG, the decision on the remuneration has to be taken by the board of supervisors as a whole and cannot be delegated to a committee. Liability for damages in case of inappropriate remuneration has been explicitly inserted in sec. 116 AktG, and members of the managing board may not be elected as members of the board of supervisors during the first two years after leaving office unless elected by shareholders representing 25% of the voting rights.
Last but not least, regarding the D&O insurance, sec. 93 (2) AktG now provides for a deductible (10% of the damage, capped by 1,5 of the fixed annual salary) of the member of the managing board.