Board Compensation—Highest Total Remuneration in the Automotive Industry

The salaries received by board members in German companies are expected to increase by an average of 3.5% over the course of 2018. This would mean board members taking home an average of 451,000 euros per year, even though board salaries in 70% of companies surveyed were lower than this figure on an average per-head basis. Overall, remuneration has increased in around 60% of companies when compared to the year before, attributed in part to continued positive economic performance and the higher target attainments that form part of variable pay structures. “The sustained positivity in the German economy should now be reflected in higher board compensation,” says Alexander von Preen, executive director of HR and management consultancy Kienbaum, which carried out the recent study into board compensation involving around 3,500 executive board members from more than 1,100 companies across Germany.

Size and industry are major factors influencing salary

The study found that the size of the company continues to play a major role in the level and structure of board remuneration, with board members of larger companies having more complex management responsibilities and wider areas of influence. Prime standard companies paid their bosses an average annual salary of around 400,000 euros per year, while other board members took home an average of 342,000 euros per year in listed companies and 333,000 euros per year in non-listed companies. Clear differences were also noted between industries. The automotive industry paid its executives the highest salaries, averaging 1.1 million euros per year, while the construction and real estate industries saw the highest rates of salary growth, where board compensation was up by just above one-third, on average, when compared to the previous year.

High variable components in larger companies

In addition to the level of compensation, the size of a company also influences performance-based pay. “In general, the variable component of overall compensation is higher in larger organizations than in smaller organizations. Across all companies, the ratio between basic salary and variable components was around 70 to 30,” explains Alexander von Preen.
The lowest proportion of variable pay within the overall package, at around 25%, was found in small companies employing no more than 500 people. In larger companies with more than 10,000 employees, the variable component was 40% of the overall compensation package.
Many companies are now working on new structures to their variable pay. “In listed companies, simplification of compensation systems is quite high up on the agenda of supervisory boards for the coming year. Overall, it’s becoming ever more important for these structures to be transparent and comprehensible to outsiders. Complex compensation systems have little motivating effect on boards, so the trend towards simplification is likely to continue,” says Mr. von Preen.

Family-run companies offer attractive salaries to board members

This year is the first time that Kienbaum’s study has looked at board compensation in family-run companies separately. “Family-run companies have different governance structures, which manifest in differing approaches to board compensation,” explains Alexander von Preen. The Kienbaum study showed that board compensation in family-run companies was extremely competitive: “When all companies are taken into account, or when you analyze comparable size classes, family-run companies come out higher, on average, when it comes to board compensation,” concludes Mr. von Preen.

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The “Board Study” can be obtained online at https://shop.kienbaum.com/ at a cost of €1,500 (plus VAT).