FINANCE Specialist Media Medium-Sized Enterprises of 24.03.2017

Are boards of listed companies overpaid?

Time and again, the pay of the top managers of listed companies comes under criticism. A new study provides counter-arguments.

The SPD candidate for chancellor, Martin Schulz, has made the issue of income justice a mainstay of his election campaign. In doing so, it is primarily aimed at the remuneration packages of top managers of listed companies. The Institute of Auditors IDW has already criticized the SPD proposals. Now another recent study provides arguments to those who doubt Schulz’s statements.

The manager’s remuneration regularly employs the public, most recently in the case of the Dax Group Deutsche Post, which wants to cap salaries. The question of whether the salaries and bonuses of directors of listed companies are too high remains an abstract one. Alexander Götz and Moritz Stahl from the corporate finance consultancy Blättchen & Partner have operationalised them by asking whether the managers of stock exchange groups get more than those of companies in family hands (Götz is also a professor at the Dual Baden-Württemberg University of Applied Sciences). The short answer: No.

Measured by Ebit, stock exchange boards no longer earn

The duo investigated 155 companies, about half of which are listed on the stock exchange. The companies were divided into four size classes according to their pre-tax and interest (Ebit) profits: from 1 to 15 million, from 15 to 40 million, from 40 to 120 million and from 120 to 500 million euros. These are exclusively companies from the manufacturing industry, such as mechanical engineering, cars and chemicals.

Subsequently, the two corporate finance consultants in each of the four groups measured the remuneration against the company’s ebit for the managers of listed and unlisted companies. The result: In the three largest Ebit classes, the bosses of the stock exchange groups get between 4 and 11 percent more than those of family-owned companies. However, this increase is not statistically significant, according to Götz and Stahl. Surprising: In the group with the smallest companies, the managers of family-owned companies earn around a quarter more in terms of ebit.


Absolutely, stock exchange companies pay more salary and bonus

If one compares the salaries of the boards per group per se, instead of putting them in relation to the Ebit, the two groups of larger companies have a different picture: For stock exchange groups with an ebit of 120 to 500 million euros, a board of directors gets an average of 1.42 Millions of euros, for family-owned companies it is 1.12 million – thus the top manager of the stock exchange company earns 27 percent more. A size class below this is just under 889,000 euros for the boards of stock exchange groups – 25 percent more than the 710,000 euros of their counterparts in family-owned companies. For the two groups of smaller enterprises, the difference is not significant.

“In principle, there is a higher remuneration for listed companies,” the researchers comment on the result. “However, the ratio remuneration to Ebit is more meaningful.” And even the differences in average salary per se are, according to the research duo, within an “acceptable limit” area, because the boards of stock exchange companies must be able to do more and bear higher risks. “This means that there is no market failure and, on average, no unreasonable remuneration,” the authors conclude.


Download article as .pdf