Belgian, Dutch and Swedish CEOs earn less than their German, French and British colleagues

A European study into the remuneration of managing directors of 701 listed companies

The two key factors that determine the remuneration allocated to CEOs are the country in which his or her company is located and its size. The CEOs of listed companies in the UK and Germany earn the most, while Belgian, Dutch and Swedish CEOs receive relatively less. The composition of the remuneration packages allocated is also prone to significant differences: the variable portion is relatively high in Germany, the Netherlands and particularly in the UK; in Belgium, France and Sweden this is significantly lower. Additionally, this study revealed that those companies that perform best do not necessarily pay their CEOs a higher salary; they make more frequent use of share-related remuneration.

These are the main conclusions to come out of a study conducted annually by Prof. Xavier Baeten of Vlerick Business School’s Executive Remuneration Research Centre into the salaries paid to CEOs. The information for the 2015 study was collected from the data of 701 listed enterprises in Belgium, France, the Netherlands, Germany, the United Kingdom and Sweden, a country which was included this year for the first time. Specific attention was given to the factors that determine remuneration and the remuneration policies of the best-performing companies.

Remuneration level: moderation is the standard in Belgium

The median of the total remuneration amount (fixed salary, bonus and share-related remuneration) of CEOs of Bel-20 companies amounted to 1,655,000 euros, in 2015, which is 2.7% higher than in 2014. With regard to relatively smaller listed companies, remuneration has fallen: companies in the Bel Mid segment paid their CEOs 675,000 euros in 2015 (755,000 euros in 2014) on average, and Bel Small CEOs received only 575,000 euros on average in 2015 (in comparison to 605,000 euros in 2014).

The size of the company proved once again to have a very strong impact. Taking into consideration the sum total of the international data examined, the CEOs of large listed companies (market capitalisation between 10 and 200 billion euros) are paid 18 times as much (4,395,000 euros in comparison to 240,000 euros) as their colleagues in smaller listed companies (market capitalisation below 50 million euros).

There are also clear national differences. The median of the total remuneration of CEOs at companies with a market capitalisation between 1 and 3 billion euros (e.g. Bekaert and Tessenderlo Group in Belgium, and PostNL in the Netherlands) amounts to 725,000 euros in Belgium, 890,000 euros in Sweden, 1,170,000 euros in the Netherlands, 1,465,000 in France and 1,520,000 euros in Germany. In other words, Belgian CEOs and their Swedish colleagues are the least well-paid, relatively speaking. If we focus on large listed companies (market capitalisation between 10 and 50 billion euros), the United Kingdom tops the list with 6,175,000 euros.

Composition of the remuneration package: cultural impact?

The proportion of variable remuneration (bonus and share-related remuneration) with regard to the total remuneration is clearly lower in Belgium (37%), France (35%) and Sweden (41%). CEOs in the UK (75%) are paid in variable remuneration to an even greater extent. The position taken by the Netherlands (53%) and Germany (59%) in this is right in the middle.

Xavier Baeten: ‘Not only are these differences big and significant; they reflect cultural differences. Where Belgium and France are known to be countries that favour a high degree of risk aversion, the Anglo-Saxon countries tend to lean towards performance-related remuneration practices. Due to the significant fragmentation of share ownership, there is a much greater need in those countries for remuneration systems that bring the interests of a company’s shareholders in line with those of its CEO’.

There are also notable differences with regard to supplementary pensions. In Belgium, the Netherlands and the UK, the company pays a median percentage of 16% of a CEO’s fixed salary into his or her supplementary pension fund. This is clearly higher in Sweden (35%) and Germany (43%). In these countries, a CEO will also receive a significant sum in postponed income in the form of a supplementary pension.

Share-related remuneration is making a come-back - share options are less favoured

Where in 2014 only 23% of listed companies in the countries whose remuneration data were used in this study allocated their CEOs share-related remuneration, this percentage rose to 42% in 2015. This form of remuneration is most popular in the UK, where 92% of the companies in the FTSE100 (the 100 largest listed companies) allocate these, followed by the Netherlands (50%). In Belgium, 65% of Bel 20 companies allocate share-related remuneration, as opposed to 28% of Bel Mid companies and 25% of all companies in the Bel Small category. It is striking that share options are allocated less frequently (a drop from 30% in 2014 to 20% in 2015), while ‘performance shares’ (shares that are allocated conditionally depending on specific indicators) are gaining in popularity.

Xavier Baeten: ‘The come-back of share-related remuneration is striking, which illustrates that our confidence in the stock market is being restored after the record lows of 2008. What is remarkable is the relative popularity of share options in Belgium, probably because they are still subject to a favourable taxation. The popularity of share options, however, runs counter to the advice issued by academics. Nevertheless, we regret that the underlying performance indicators focus primarily on profitability and share prices, and to a much lesser extent on sustainability, innovation and efficiency’.

Better-performing companies do not pay their CEOs better

This year, the study more closely examined companies that continually deliver strong financial performance.

  • The proportion of variable (performance-related) remuneration has shown to be greater.
  • These companies have a greater tendency to allocate share-related remuneration (and ‘performance shares’ in particular).
  • Forty-three per cent of these companies pay the CEO above the market median - in comparison to other companies, where this figure is fifty per cent.

Xavier Baeten: ‘This study confirms that better-performing companies do not necessarily pay their CEOs more (or should pay their CEOs more) than the market median. There are a substantial number of executive boards that are of the misguided opinion that a good CEO can only be attracted by above-market remuneration. Our study has shown that this is not true, and also illustrates the increasing importance of non-financial remuneration, such as challenges, pride or ethical values’.

In comparison to other studies investigating the remuneration of CEOs, this study offers unique added value. First of all, the analysis extends to multiple European countries. Also, the remuneration awarded to the CEOs of all listed companies has been placed under considerable scrutiny, where other studies limit themselves to data collected from the biggest companies exclusively. Thirdly, that database is fed on a continuous basis each year, which enables developments to be analysed over a longer period of time. Finally, not only were the salary levels investigated, but the composition of the packages was examined as well.

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