Belgian CEOs earn 35% less than German CEOs

European study into the remuneration of senior managers in 844 listed companies

Belgian senior managers do not earn less than their colleagues in the Netherlands, France, Sweden and Switzerland. However there is a significant difference of up to 40% in comparison to the salaries of CEOs from companies in Germany and the United Kingdom. Moreover, the current remuneration practices fail to sufficiently encourage business leaders to pay attention to environmental matters and to the long-term creation of shareholder value. 

These are the key conclusions of the annual study of top salaries by Professor Xavier Baeten and researchers Said Loyens and Bettina De Ruyck from Vlerick Business School’s Executive Remuneration Research Centre. The 2017 sample comprises 844 listed companies in Belgium, France, the Netherlands, Germany, the United Kingdom, Sweden, and – for the first time – Switzerland.

Remuneration levels: slight decrease in Bel 20 and Small, rise in Bel Mid

In 2017, the median total remuneration (fixed salary, bonus and share-related remuneration) of CEOs of the Bel 20 companies was 1,975,000 euros (2016: 2,080,000 euros), of the Bel Mid 865,000 euros (2016: 690,000) and of the Bel Small 525,000 euros (2016: 560,000 euros). The median remuneration has therefore decreased slightly in the largest and smallest listed companies, whilst rising sharply in the Bel Mid.

Xavier Baeten: “This does not mean that all CEOs in the medium-sized listed companies have received a significant increase. Of the 29 Bel Mid companies for which we also have data for 2016, there are 12 whose remuneration has decreased or stayed the same. However there are 14 whose remuneration has risen by over 10%. These are often companies who did not award any share-related remuneration (long-term incentives) in 2016, but did do so in 2017.”

International comparison: Germany and the United Kingdom continue to top the list

If we focus on the major stock market indices, Belgium and Sweden are among the lowest-ranked, with a median remuneration of 1,975,000 and 1,740,000 euros respectively. The CEOs of the large listed companies in our neighbouring countries earn more: the Netherlands (AEX): 3,590,000 euros; Germany (DAX): 6,205,000 euros; France (CAC 40): 4,440,000 euros; the UK (FTSE 100): 3,830,000 euros; and Switzerland (SMI Expanded): 3,245,000 euros.

However it would be a mistake to conclude that Belgian CEOs are amongst the worst paid. Using statistical techniques that take into account the size of the company, we have ascertained that it is only the CEOs of German companies and companies listed in the United Kingdom who clearly earn more than the CEOs of Belgian listed companies. The difference is 35% and 29% respectively.

The researchers have also identified what other factors, beside the country, have an impact on a CEO’s remuneration. This year, the size of the company was again the number-one factor. For every 1% increase in stock-market capitalisation, there is a rise of 0.43% in the CEO’s remuneration. Another striking finding is that foreign CEOs are paid more, despite the fact that this is supposedly an international market. Moreover, it is also the case that companies with a more fragmented shareholder structure pay their CEOs more. This could relate to the fact that in these companies, there is less likely to be a ‘controlling’ shareholder who also closely monitors the salaries of the senior management.

Reporting on top salaries: Belgium certainly not in the leading group

The European ‘Shareholder Rights Directive’, which lays down certain requirements as regards the disclosure of top salaries, will come into force in the next few years, including in Belgium. This requires detailed information to be provided about the bonus system. The Vlerick study has established that at present, just 23% of Belgian listed companies provide information about the level of the target bonus, i.e. the bonus that is awarded if the targets are met. Furthermore, only 51% provide information about the maximum bonus. In this regard, Belgium is certainly not top of the class: 65% of Dutch listed companies provide information about the target bonus, and 68% of German companies. If we focus our attention on the underlying criteria that determine the bonus, we find that 80% of Belgian companies provide this information, compared to 89% of Dutch companies. In the United Kingdom 100% of the companies do this, and Switzerland also performs well with 94%.

Remunerations systems fail to sufficiently encourage long-term behaviour

The Shareholder Rights Directive also aims to stimulate companies to focus on long-term value creation, as well as wanting to see so-called sustainability criteria (e.g. environmental impact) play a role in the incentive systems.

Xavier Baeten: “It is striking that incentives for senior managers are still strongly driven by short-term results. 87% of the companies apply profitability criteria to determine bonuses, while just 3% set concrete targets relating to emissions or other environmental aspects. What’s more, the financial criteria for the bonuses are given an average weight of 75%. Once again, there are clear differences between the countries here: whilst 32% of Belgian companies include indicators in the bonus that relate to employees, the environment, customers or general sustainability criteria, this is 41% in the Netherlands and as high as 61% in the United Kingdom. Germany performs particularly poorly, at just 12%.”

Another method of linking the CEO’s ‘fate’ to that of the company—and for which there is growing enthusiasm—involves the CEO holding shares in the company on a long-term basis. In the study, it was striking that this period is generally just three years. The research furthermore revealed that just 25% of the companies give shares to their CEOs that only become available or can be converted into cash after more than three years. In this respect, Belgium performs considerably worse than average, with just 12% of companies satisfying these requirements. Here too, Dutch firms perform better than their Belgian counterparts with a figure of 26%, but it is the UK that once again tops the list, with 42% of companies using remuneration mechanisms that emphasise long-term shareholder value.

Every year, Vlerick Business School’s research team analyses the remuneration reports of listed companies in Belgium, the Netherlands, France, Germany, Sweden, the United Kingdom and – new this year – Switzerland. Within this, almost all aspects of remuneration are examined, including remuneration levels, remuneration instruments, underlying criteria, the voting behaviour of shareholders, and the companies’ disclosure practices. The results reported relate to 2017. 

& Rankings

Equis Association of MBAs AACSB Financial Times