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Say on Pay becomes standard

For a significant majority of DAX and MDAX listed companies, the survey of shareholders on the Management Board and Supervisory Board remuneration schemes at general meetings is a key agenda item. This was shown by a recent study by the consulting firm Hostettler, Kramarsch & Partner, in which 48 DAX and MDAX companies participated. Almost 70 percent of respondents had conducted such an owner survey in 2010. In the interviews, in all cases the systems of executive compensation had been brought to a vote. About one tenth of the companies had also put the amount of the remuneration and the remuneration system for the supervisory board to the shareholders for discussion. The approval rates for the surveys were consistently at 90 percent and higher. Where changes were desired, these were the provision of additional information and changes in presentation in annual reports.

14 companies (40 percent) among the study participants are planning a Say on Pay survey for 2011. As in the previous year, in all the companies the executive compensation systems are on the agenda. About 36 percent additionally secure shareholder backing for specific criteria in the executive compensation; just under one in ten (nine percent) in each case does so for the level of individual components of compensation, for fringe benefits and for occupational pensions. About one-tenth of the companies sees Supervisory Board pay as an agenda item at the AGM. Almost 56 percent of companies indicated they did not want to make any modifications to their systems for officer compensation. Where changes are deemed necessary, this concerns mainly the priority focus of the compensation on long-term business success (33 percent), changing the compensation mix, increased parallelism of corporate earnings and total compensation (22 percent each) and an increased recognition of risks (11 percent).

With the intensified use of Say on Pay surveys at general meetings, German companies are following an international trend. “Especially in the U.S. and UK, the owners have for many years been intensely involved with the payment systems of their organizations,” says Joachim Kayser of Hostettler, Kramarsch & Partner. “We see this as an effective tool for responsible involvement of business owners in the process of design of compensation systems.”

Siemens is Mr. Clean

In a survey conducted by Heroldsberger Wirtschaftsinstitut Dr. Doeblin, 73 business journalists interviewed awarded Siemens CEO Peter Löscher top marks in terms of business ethics. The institute had asked the journalists at the end of November which business leaders from a list of 40 CEOs of major companies saw the “focus on business ethics as a special personal matter”. After the Siemens CEO respondents chose Bosch CEO Franz Fehrenbach, Norbert Reithofer of BMW, Hans-Otto Schrader of Otto, Jürgen Hambrecht of BASF and Hartmut Ostrowski of Bertelsmann in the next places. Respondents certified Siemens’s purification: Munich had learned from the corruption scandal, ran the message. Bertelsmann and Daimler also proved the most credible with their commitment to CSR (Corporate Social Responsibility). While Bertelsmann was honest and credible, Daimler was positive on sports sponsorship. However, the business journalists doubted the CSR seriousness of many companies. For many, the commitment was merely lip service, to give the impression of “being there”.

Putting Sustainability to the Test

The German stock exchange, in cooperation with sustainability research provider Systainalytics, has put online a list of 1,800 international companies, which have proven by their social and environmental standards to be sustainable. On the purpose-built “Sustainable Securities” portal of the Frankfurt Stock Exchange, private and institutional investors can set their own weightings in the three ESG categories ecological compatibility (environment), social responsibility (social) and business management (governance) as well as in the overall evaluation, and then choose the right company from the list, or eIse evaluate existing investments by these criteria. The analysis incorporates more than 100 indicators. These range from CO₂ emissions via child labour to the clear separation of management and supervision. The info portal covers all asset classes from equities, ETFs and mutual funds up to certificates. In addition, the German stock exchange will, jointly with its subsidiary STOXX, be offering the new STOXX Global ESG Leaders index, giving the ESG figures for 1800 European stock corporations.

Ratings agencies exacerbate crises

Experts from the International Monetary Fund have looked in the context of a study at 71 rating judgments published between October 2006 and April 2010. “Opinions on the creditworthiness of state actors have impacts, statistically and economically, on other countries and financial markets,” concluded the IMF experts. According to the study, the judgments were shown to affect stock prices and credit default swaps (CDS). Market reactions were demonstrably not just chance. Judgments of ratings agencies could thus endanger the creditworthiness of countries, was the verdict. The study thus fanned the smouldering controversy over the role of credit-quality monitors in the economic crisis. Luxembourg central bank chief Yves Mersch accused the agencies, coming from the USA (Moody’s and Standard & Poor’s) or the UK (Fitch), of wrongly evaluating the situation in Europe. This was particularly the case in regard to the Euro crisis and the weakening countries such as Greece and Portugal. The IMF, therefore, voted to follow the example of the European Central Bank and in the provision of loans to banks in future to ignore the judgments of rating agencies in relation to investments in government bonds.

Trend towards sustainability

The consulting firm KPMG has found in a study of 378 companies from Europe, the USA, Canada and Asia-Pacific that more and more companies are pursuing an explicit sustainability strategy. While in 2008 only 50 percent of companies surveyed did so, in 2010 it was 62 percent. Large companies lead the way: in companies with a turnover of at least one billion U.S. dollars, 80 percent have already formulated a sustainability strategy and another 25 percent said they would do so no later than the next five years. When asked about the benefits, 61 percent said that they expect a positive impact of sustainability programmes on cost reduction and profitability. But many saw three basic obstacles. There was a lack of uniform criteria and procedures as well as a sufficient budget. In addition, there was no international regulatory framework.