Fourth practical forum for supervisory board chairmen

It is now an established event at the Industrie-Club Düsseldorf – the HEADSAHEAD practical forum for chairs of supervisory bodies. People know each other and are looking forward to another exciting discussion evening in a familiar circle, for the second time this year as well.

The topic of the evening could not have been more urgent. Which requirements arise for the design of future executive compensation systems of listed companies in consideration of the ARUG II regulations coming into force in 2020 and the recommendations of the revised German Corporate Governance Code (DCGK)?

Gastreferent und Korn Ferry Vergütungsexperte Prof. Dr. Michael Bursee stellte fachkundig die wesentlichen rechtlichen Anforderungen für börsennotierte Unternehmen vor: Die Ausarbeitung eines klaren und verständlichen Vergütungssystems, das einen Beitrag zur Förderung der Geschäftsstrategie und zur langfristigen Entwicklung der Gesellschaft leisten muss, dessen Offenlegung einschließlich fester und variabler Vergütungsbestandteile sowie (nicht-)finanzieller Leistungskriterien sowie die nunmehr zwingend erforderliche Billigung dieses Systems durch die Hauptversammlung. This is consistent with the GCGC’s recommendation that variable compensation should be based on strategic objectives.

But how do you evaluate performance and success at the board level? This question seemed to be on the minds of all participants. Whereas traditional performance measurement has so far predominantly been based on results-oriented indicators that serve as a yardstick for the target achievement of each Executive Board member determined on the basis of individual target agreements, the trend in the future could increasingly be to replace individual target agreements with collective targets in order to better reflect the overall responsibility of the Executive Board.

The discussion on the definition and integration of strategic compensation criteria raised the question of the extent to which the Executive Board is willing or able to disclose its strategy. Strategies are known to be complex, multidimensional and, if necessary, adaptable to rapid market developments. It therefore remains to be determined to what extent strategies can be operationalized or strategic success criteria can be measured. Accordingly, remaining margins were questioned. Discretionary compensation elements that are set too high are still likely to be problematic and provoke a “vote against” from proxy advisors and institutional investors.

According to Linklaters’ legal and pragmatic advice, companies must always assess their own room for manoeuvre when designing future remuneration systems at board level and defend any justified deviations from the DCGC’s recommendations. Active dialogue with proxy advisors and institutional investors is becoming more important than ever and must be encouraged.

Naturally, not all uncertainties could be eliminated that evening. The individual performance differentiation of the Executive Board as well as the coupling of strategy and performance remain challenging topics for the Supervisory Board. However, there was agreement among the Supervisory Board chairmen that the regular practical exchange represented added value for each individual and that future dates for the practical forum would be noted in the calendar as a matter of priority.

All News