Remuneration Governance in Germany and the United Kingdom

Abstract

Every year during the so-called “annual general meeting season” the remuneration of top managers makes it into the headlines of newspapers and onto the political agenda. Excessive executive remuneration is a long-standing problem, which has repeatedly caused regulatory action in the last two decades.
The scholarly debate on executive remuneration is multifaceted and due to frequent reforms, quickly dated. This thesis focuses on remuneration governance, which is the system by which executive remuneration is set and monitored. In a critical comparison of the current German and UK remuneration governance rules it questions the effectiveness of the three main mechanisms of remuneration governance – namely the (supervisory) board as the remuneration setter, the disclosure of executive remuneration, and the shareholder vote on executive remuneration. Taking the latest reforms into account, the strengths and weaknesses of the two systems are identified. The thesis finds that the current remuneration governance instruments are not satisfactory. Suggestions for improvement are made, based in part on the experiences made in the other jurisdiction.
An often neglected facet when examining remuneration governance is the influence of EU measures on national remuneration governance rules. The thesis finds generally a limited impact of EU measures in the past. For the future the question arises at which regulatory level measures for improvement should be taken.
Further reforms regarding the (supervisory) board are – at least on a European level – not very promising. Rather the harmonisation of disclosure rules is suggested. Only EU measures could lead to standardisation sufficient to increase the disclosure’s informative value, clarity and comparability. In particular the form of the disclosure should be standardised. A standardised remuneration report would furthermore be predestined to be the subject-matter of an improved, harmonised shareholder vote. Enhanced transparency and comparability would empower shareholders and reduce agency costs.