Top European salaries: the gap between countries is widening

Results of European research into corporate executive pay in listed companies

In continental Europe, the best-paid CEOs can be found in Germany. Belgium and France pay less. Dutch companies are the most economical. In the past three years, Europe has continued to moderate executive pay, a trend which began in 2007, particularly as far as the slightly smaller listed companies are concerned. The biggest cuts have been made in the United Kingdom. In general, the level of executive salaries is mainly dependent on the size of the company, followed by the country where the company is based. Company performance has far less of an impact. The composition of remuneration packages has hardly changed, but we find significant differences between countries here as well. Finally, we have noted that the trend towards corporate social responsibility and sustainability has not yet really been reflected in the criteria that determine variable pay.

These are the most important conclusions of the annual study of pay policy and top salaries by Professor Xavier Baeten and researcher Bieke Huyst of the Executive Remuneration Research Centre at Vlerick Business School. The 2013 sample consists of 512 listed companies in Belgium, France, the Netherlands, Germany and the United Kingdom. Specific attention has been paid to developments over the last three years, retirement benefits and the determinants of variable remuneration.

Developments over the last three years: moderation of executive salaries

In the five countries involved, approximately half the companies (49%) did not grant a pay rise to the CEO in the last three years, or even reduced his or her salary. CEOs in the United Kingdom were treated most severely: 61% of them did not receive a raise. However it must be said that British CEOs are still paid considerably more than their European colleagues. Germany, on the other hand, was the most flexible: seven out of ten CEOs there were given a raise. In Belgium the salary of 43% of the CEOs remained stable or fell.

Large differences between countries

There are large differences between countries both in terms of salary level and the composition of salary packages. The best-paid CEOs are found in the United Kingdom, followed by Germany. For the first time, Germany overtakes the UK with regard to salaries in the largest companies. German salaries (€ 3 438 000) have exceeded those in the UK (€ 3 401 000). As for the composition of the package, it is heavily biased towards variable remuneration in the UK and Germany (respectively 67% and 61% of the total package). Belgium and France are clearly more risk-averse, with respectively 34% and 33% of their packages variable. The Netherlands is in between, with 42% variable salary. Another clear effect of the country where the company is based can be seen in share-related remuneration. That is considerably more popular in the Netherlands and the United Kingdom. Xavier Baeten tells us that “this has to do with a different shareholder structure. In both countries, institutional investors play a greater role and they are strong proponents of share-related remuneration in order to attune the CEO’s interests to their own.”

Belgium: the odd one out?

Whereas ‘performance shares’ (shares granted when certain performance criteria are met) are gaining importance in other countries, share options in Belgium are still particularly popular. 68% of Belgian companies that grant share-related remuneration do so in the form of share options, although this only amounts to 14% of the total sample. As Xavier Baeten explains, “This has everything to do with the Belgian tax treatment of share options. I do not see why performance shares should be subjected to different, less attractive tax treatment: on the contrary.”

What are companies paying for?

This year’s research pays particular attention to the indicators on which the bonus is based. This provides us with a very clear picture: 72% of companies use a profitability indicator to determine the variable remuneration. This indicator is the most important by far. If we group the indicators, we find that 78% of companies use profitability indicators (‘profit’), as opposed to only 16% that use (or also use) social indicators (‘people’) and 14% that use (or also use) environmental indicators (‘planet’). An interesting finding is that the most successful companies use a mixture. “Even though sustainability is a really important social issue, we have found that this has not yet had an impact on most companies’ remuneration systems,” Xavier Baeten tells us.

What determines the level of top salaries?

The level of top salaries is still primarily determined by the size of the business. Another factor that plays a significant role is the country where the company is based. Lagging far behind, a third factor is the company’s profitability, which plays a considerably less important role. As Xavier Baeten concludes, “it is striking that the country where the company is based has become more important over the last few years. This doubtless has to do with the fact that many countries have developed laws and codes in an attempt to curb excesses. However it also means that we cannot really speak of a European vision, which is a shame in itself.”

ABOUT THE UNIQUENESS OF THIS RESEARCH

In comparison with other research into executive pay, this study has unique value. Firstly, this is because the analysis involves several European countries. Secondly, remuneration at all listed companies is scrutinised, whereas other research tends to be limited to the very biggest companies. Thirdly, the database is updated year after year, enabling the analysis of evolutions over a longer period. Finally, this research does not only look at salary levels but also takes the composition of pay packages into consideration.

 

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