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.
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 (€)
|Management board member
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.