Campus

Dividends from the reserves

The total dividend in the regulated market of the Frankfurt Stock Exchange - that is, the 569 companies listed in the CDAX (composite DAX) - is back at near the level before the crisis, thanks to increasing company profits of 34 billion euros. This emerges from a study that shareholder association Deutsche Schutzvereinigung für Wertpapierbesz (DSW) presented on 7 May in Frankfurt. According to Klaus Nieding, it is important for shareholders whether or not the dividend is paid from profits or from the substance of the respective company. For example, E.ON, Deutsche Lufthansa and ThyssenKrupp paid out money to investors although they had made ​​a loss. Also questionable were payments from Deutsche Telekom, MAN and Munich Re, who paid their dividends partly from reserves. Although the DSW Vice President critically questioned the dividends of six DAX companies not covered by profits at the general meetings, it voted for distribution at all of them.

At the Annual General Meeting of Deutsche Lufthansa on 8 May DSW “exceptionally” agreed to the proposed distribution of dividend of 0.25 euros per share, or 114 million euros, on the grounds that it considered this a positive sign for the future. Also, at the meeting of Deutsche Telekom on 24 May the association agreed with a payout of 0.70 euros per share, or 3.01 billion euros. Although these will be distributed from the substance of the company and not from operating activities, the distribution is consistent with Telekom’s dividend strategy expiring in 2012, which was endorsed by the DSW. This must however ​​mandatorily be put to the test next year.

At the MAN shareholders’ meeting on 20 April, the profit proposal of 2.30 euros per ordinary and preference share (a total of 388 million euros) was approved unconditionally. Munich Re also paid its dividend from reserves. 2011 was marked for the group by exceptional stresses, so that the proposed dividend (€6.25 per share, corresponding to €1.11 billion) was seen as a positive sign here too. Accordingly, it was also accepted by DSW, on 26 April. Again, at the E.ON AGM, on 3 May and thus only a few days before the publication of the study, the proposal was approved from the perspective of dividend continuity. At 1.91 billion euros, each share accounted for a dividend of 1.00 euros.

Already on 20 January at the ThyssenKrupp AGM, the DSW had likewise agreed to a distribution, although no operating profit was earned. The €232 million corresponded to €0.45 per share. According to DSW, here too dividend continuity had priority.

DAI rails against the Code

The German Share Institute (DAI) warns against over-regulation on the stock markets and in the corporate governance of companies. Thus, the DAI rejects capping salaries of German corporate executives in the millions. Specifically, this is about a new recommendation in the Corporate Governance Code, that Supervisory Board members should establish a relation between executive remuneration and the average income of workers. For salaries over five million euros, moreover, the general meeting should decide. At least that was called for by Klaus-Peter Müller, Chairman of the German Corporate Governance Commission and Supervisory Board chairman of Commerzbank, and ex Daimler CFO Manfred Gentz. Both had advocated limits on executive pay in an open letter to the 30 DAX Supervisory Board chairs in late March. Company acceptance for executive pay is necessary instead, however, says Karlheinz Hornung. The Commission’s tendency to paternalism was fuelled by political, legislative and self-proclaimed experts, thundered the head of the lobbying group. Politicians must resist the temptation to populism, the DAI President continued. Also, the Code was narrowing shareholders’ freedom of choice at Supervisory Board elections with respect to qualification, gender and nationality further and further. The number of independent supervisors envisaged by the Code also put major shareholders at a loss to explain why, thus implying a dependency. This weakened shareholder rights substantially, said Hornung. Also, the proposal of the European Commission on limits to auditors’ mandates had no convincing explanation.

A million should be enough for CEOs

The public has little sympathy for high executive salaries. Exactly 50 percent of Germans find that an annual salary of one million euros is sufficient for a manager of a large company. This pay is considered to be appropriate even then, however, only if the company can look back on a successful year. Thus the population sets the borderline significantly lower than is allotted to directors in the real world. This is the result of a survey published on 2 May by the Dr. Doeblin Economic Research Institute. 28 percent of respondents would at least concede managers an annual salary of up to five million euros. Another nine percent of the 1,000 respondents would even issue a paycheck of between five and ten million. A further three percent are for a maximum of €20 million annual salary; only two percent find over 20 million is appropriate. Mainly younger people are willing to allow successful CEOs higher pay.

For now, no cap on executive compensation

The Government Commission for the German Corporate Governance Code (DCGK) has not adopted any recommendation to limit executive remuneration at German companies. In the medium term, however, directors of listed companies have to expect that a cap on their compensation might also belong to good corporate governance. For some time the amount of some executive compensation has caused public discussion. The debate on the Code about remuneration was also fuelled once again by the record pay level of almost €18 million for VW CEO Martin Winterkorn. Although the Commission voted down a push by Dietmar Hexel, the topic should return to the Commission's agenda by at least 2013, the body decided at its annual plenary session. Hexel, who also belongs to the 14-member commission, had proposed to cap the amount of executive pay at a specific multiple of the average income of the workforce.