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MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM GERMANY’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY
About CGLytics CGLytics is transforming the way corporate governance decisions are made, for effective oversight and competitive edge. Combining the broadest governance and executive remuneration data set in the market with powerful analytics tools, CGLytics enables organisations to make better informed, data- driven decisions. CGLytics provides real-time data for an independent analysis of companies’ governance practices including peer benchmarking. CGLytics is the source of global remuneration data and analytics for Glass Lewis’s voting recommendations and is a trusted Diligent partner. Utilise the range of CGLytics tools to benchmark your governance practices against 5,900+ global companies and be fully prepared for proxy season: Executive Compensation Benchmarking Glass Lewis Compensation Analysis Glass Lewis Equity Compensation Model (ECM) Corporate Governance Benchmarking Business Relationship Mapping Contact CGLytics MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY —
Contents
About CGLytics —
COVID-19 and Its Impact on Corporate Governance 03
CEO Compensation Reduction amidst COVID-19 05
Executive Remuneration: Proxy Season Background and Highlights 2020 06
CEO Compensation Analysis 08
Historical Overview 08
Pay Mix Design 09
Pay for Performance 11
DAX Index Tracker Analysis 13
Projected Pay for Performance Alignments after Adjustments 14
Executive Positions Breakdown 15
Board Composition and Gender Diversity 16
Analysis of the DAX Board Expertise 18
Case Study: WIRECARD AG 19
Conclusion 20
APPENDIX 21
References 21
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDYCOVID-19 and Its Impact
on Corporate Governance
Reflecting on this year’s proxy season, CGLytics is releasing its first annual DAX proxy
review, providing key takeaways from proxy season 2020 and analysing the state of the
German index in times of the COVID-19 crisis. Learning from key issues of the season, as
presented in this report, ensures corporations will be prepared to confidently engage with
investors.
The Coronavirus has affected global markets in the last At the end of June, shareholders of Deutsche
few months and is likely to leave the economy in a state Lufthansa AG voted in favour of the stabilisation
of uncertainty for the near future. Companies in various package of up to €9 billion provided from the
industries and markets have experienced changes in government to help the company recover from the
supply and demand. Some industries being affected crisis.
negatively, while others have benefited from the
consumer shift. Looking at the constituents of the German DAX index,
several common responses to the COVID-19
German companies have been striving to protect the pandemic with regards to corporate governance can
health of its employees and shareholders by closing be seen. Many companies have rescheduled the
production sites, enforcing working from home and Annual General Meeting of shareholders for later
organising virtual meetings of shareholders. Second months or held it as a virtual event. In order to
quarter results for 2020 show that some companies are respond to a rapidly changing economic situation
coping well with the crisis and remain profitable (an companies have been announcing changes in
example being Deutsche Post AG), while others (such as forecasts or withdrawals of the outlooks for the 2020
Daimler AG) show significant drops in profit. financial year.
The German government has introduced numerous
updates to legislation, including corporate governance
regulations and guidelines, in order to help minimise the
impact of the pandemic. Most notably, virtual Annual
General Meetings are allowed until the end of 2020,
contrary to prior legislation. In addition, the government
proposed a bailout package of €156 billion to support
the society and self- employed citizens, €600 billion
rescue fund available for loans, guarantees and equity
stakes in companies, and €500 billion available to boost
companies’ liquidity1.
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 03COVID-19 and Its Impact
on Corporate Governance
Other companies, such as Bayerische Motoren Werke
AG, have updated their outlook to show the expected Pay cuts / Forfeiture by Positions
negative impact of the Coronavirus. The index has also
witnessed a significant number of cancellations of share CEO only 4
buy-backs as a means of liquidity and capital retention.
CEO and Directors 4
The pandemic has brought about pay cuts for executives
in order to decrease costs. Within the DAX, eight Directors only 1
companies have issued some form of pay cut for their
Chief Executive Officers and the Management Board
members. Of these, seven companies issued cuts on the
SOURCE: CGLYTICS DATA AND ANALYTICS
base salaries ranging from 10% to 100%. Seven of the 30 index constituents introduced changes
to dividend payments caused by the pandemic.
Most reductions were introduced as temporary Deutsche Lufthansa AG’s shareholders voted in favour
measures, varying from a one-month fixed pay cut for of the cancellation of dividend payments for 2019 as
the Management Board of Deutsche Bank the company is going through the bailout processes.
Aktiengesellschaft to nine-months 20% fixed pay cut in Volkswagen AG and Adidas AG announced
case of Beiersdorf Aktiengesellschaft and Daimler AG. postponement of dividend pay-outs (Adidas was
Adidas AG also announced 100% reduction in the influenced by the conditions of the syndicated loan the
variable bonus for the Executive Board members for the company received from the State Development Bank).
entire year2. Furthermore, three companies proposed the reduction
of dividends to their shareholders - a motion that was
Five companies further announced fee reductions for the supported at their respective Annual General
members of the Supervisory Board, varying from a 15% Meetings. Overall, the impact of the pandemic is
cut for the six-month period (as in the case of Covestro expected to continue to affect companies on German
AG) to a 50% reduction for undisclosed duration (for and other markets.
Adidas AG). The companies that disclosed actions
regarding the reduction of the Supervisory Boards’
remuneration are operating predominately in the
Consumer Discretionary and Materials sectors. These
sectors showed general decline across the world as the
demand for non-essential goods dropped during the
crisis.
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 04CEO Compensation Reduction
amidst COVID-19
Among the seven companies that disclosed pay cuts to Deutsche Bank Aktiengesellschaft reported that their
their CEO’s base salaries, six reported a pay cut between CEO will forfeit one-months’ full salary. From our
10% and 25%. The projected pay cut represents an analysis, this is expected to represent 7% of the total
average of approximately 4% of their projected realised realised compensation for their CEO.
compensation for 2020.
Pay Cut Number of Projected Projected Realised Average
Range Companies Pay Cut Compensation Pay Cut
≥10%≤25% 6 923,867 25,122,133 4%
>25%50%70% 1 283,333 4,125,700 7%
SOURCE: CGLYTICS DATA AND ANALYTICS
Pay Cuts May Merely Be Superficial
Despite the appeal of executive pay cuts, they make up and HeidelbergCement AG announced the
a tiny portion of what CEOs will receive in 2020. Giving introduction of shortened working hours for its
credence to the notion that many of these pay cuts could employees.
merely be a “publicity stunt”. The pay cuts as announced
by these companies are meant as a show of support and As global air travel was hit by the lockdown, Deutsche
solidarity with their employees. However, with CEOs’ Lufthansa AG and MTU Aero Engines AG both
base salaries forming a small chunk of the composition declared losses and layoff intentions. Most of the
of CEO pay, we find that their intention though noble Financial industry companies were affected by the
does not represent enough skin in the game. crisis, and Deutsche Bank Aktiengesellschaft has
decided to resume job cuts as part of its cost reduction
program.
The data suggests that the combined CEO pay
A few companies, on the contrary, showed strong
cuts/bonus forfeiture initiated by eight DAX companies
performance since the beginning of the pandemic due
account for 5.91% of their combined projected total CEOs
to raising demand for their business. Among them are
realised pay for 2020. When compared to the DAX index,
Industrial sector representative Deutsche Post AG;
their pay cuts will account only for 1.10% of the combined
Communication Services company Deutsche Telekom
projected total CEOs realised pay.
AG; E.ON SE and RWE Aktiengesellschaft representing
Utilities; and Health Care sector companies Fresenius
Medical Care AG & Co. KGAA and Fresenius SE & Co.
Furthermore, the majority of the DAX constituents KGaA. As the global demand shifted towards online
announced losses in the first and second quarters of shipping, virtual communications and the urgent need
2020. The Consumer Discretionary sector was severely for specialised health care products, these companies
hit by the crisis. All of the representatives of the showed upwards trends in their performance.
Automobiles and Components industry in the index have
declared losses, had to temporarily close factories and
have experienced drops in demand from the global
Economic Performance in the 1st Quarter 2020
markets. Bayerische Motoren Werke AG, Daimler AG * Excluding Wirecard AG
and Volkswagen AG announced plans to lay off
employees due to the losses and cost reduction
8
initiatives. Decline in Performance
Growth or Stable Development
21
Other industries have experienced similar issues.
Materials sector’s companies in the index all showed
unsatisfactory results in the first quarter,
SOURCE: CGLYTICS DATA AND ANALYTICS
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 05Executive Remuneration: Proxy Season
Background and Highlights 2020
There is a decline in the percentage of votes cast We note that, among companies composing the DAX
against remuneration related resolutions from 2018 30 Index, only five (Allianz SE, Daimler AG, Deutsche
Lufthansa AG, HeidelbergCement AG and Linde plc)
In 2019, five companies put forward remuneration put forward remuneration-related proposals in 2019
items compared to 10 during 2020 proxy season compared to 10 (BASF SE, Bayer Aktiengesellschaft,
Continental Aktiengesellschaft, Daimler AG, Deutsche
No remuneration related resolution was defeated Börse AG, Deutsche Lufthansa AG, Henkel AG & Co.
during 2020 proxy season KGaA, Siemens Aktiengesellschaft, SAP SE and Linde
plc) in 2020 proxy season.
In 2020, Shareholder resolutions submitted by
Deutsche Bank's investors were defeated. In 2019, the remuneration report of Deutsche
Lufthansa AG received a 42.58% opposition. Reports
Since the introduction of the German Act on the suggest that this high level of opposition stemmed
Appropriateness of Management Board Remuneration from the company’s lack of a clawback policy in its
(Gesetz zur Angemessenheit der Vorstandsvergütung) in remuneration structure, as well as a proposed
August 2009, say-on-pay votes in Germany remain increase to the CEO’s base salary. In 2020, the
voluntary rather than mandatory. Moreover, instead of company’s remuneration system was approved with
an annual vote, say-on-pay votes typically only occur 88% of votes. In 2019, Allianz SE and
every five to seven years. However, major changes have HeidelbergCement AG received relatively minor
been introduced into the German corporate governance opposition to their remuneration-related proposals,
space with the implementation of the European with their say-on-pays receiving 7,89% and 6,63%
Shareholder Rights Directive II (SRD II), which was opposition, respectively. Daimler AG received the
implemented into German law on January 1, 2020. lowest levels of opposition, with only 2.13% of votes
cast against the company’s say-on-pay. In 2020, we
Regarding remuneration, SRD II implements a find that Deutsche Börse AG received approximately
standardised framework of remuneration disclosure and 35% of votes against their remuneration report. It is
shareholder votes at listed companies across the EU. reported that proxy advisory firm, Glass Lewis,
Shareholders will have the right to vote on directors' advised shareholders to vote against the
remuneration policy at least every four years. The vote remuneration report because the Short-Term Incentive
may be binding or advisory, at the choice of the Member of the remuneration policy lacks challenging targets
State implementing the directive. According to the and/or performance hurdles. The company’s Annual
European Commission (EC), this provision aims to Bonus is currently weighted two-thirds on Net Income
guarantee a stronger link between pay and Growth and one-third on Individual Targets.
performance.
Total Votes Against - Remuneration-Related Items
16% 15%
14% 13%
12%
12%
Percentage of Votes
10%
9%
10%
8% 7% 7%
6%
6% 5% 5%
4% 4%
4%
2%
0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Years
Source: CGLytics Data and Analytics
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 06Executive Remuneration: Proxy Season
Background and Highlights 2020
From our analysis, the average votes cast against Many investors voiced concerns over the acquisition
remuneration-related resolutions seem to be declining stemming from the legal cases that Bayer assumed
from 2018. In 2018, on average 13% of total votes were following the merger related to Monsanto’s weed killer
against remuneration items, which decreased to 10% in “Roundup”.
2019. In 2020, the average votes cast against
remuneration-related resolutions were 7%. Remarkably, In 2020, the index witnessed several resolutions that
total votes cast on remuneration items increased from were defeated, all from Deutsche Bank
2019 to 2020, which is interesting given the COVID-19 Aktiengesellschaft. Rejected resolutions were added
pandemic and the effects it had on Annual General to the agenda after the request from shareholders and
Meetings. The number of remuneration-related included votes for the removal of three Directors from
resolutions also increased from five in 2019 to fourteen the Board (Dr. Achleitner, Professor Dr. Winkeljohann
in 2020. The study and the analysis also suggest that and Mr. Schütz), vote of no confidence in the
the sector with the most revolts during the 2020 proxy Management Board members primarily involved in the
season was the Financial sector, where the average advisory contract with Cerberus and vote for
votes cast against remuneration-related items was amendments of the Articles of Associations related to
approximately 18%. remuneration policy. All resolutions were rejected by
the majority of shareholders.
In 2019, only one proposal received a majority of
opposition votes by shareholders. Bayer
Aktiengesellschaft’s proposal to discharge its
Management Board was rejected with a resounding
55% of votes cast against. Discharge of the
Management Board is a mandatory but often symbolic
resolution item in Germany. However, investors often
vote against this agenda item as a means of expressing
discontent with the company’s Management Board or
company policies/practices in general. In the case of
Bayer, shareholders primarily voted against the
discharge of the Management Board as a sign of
opposition against the company’s acquisition of
Monsanto for USD 63 billion in July 2018.
2020 Breakdown by Sector of Votes Against Remuneration-Related Items
Energy
Consumer Discretionary
Utilities
Industrials
Sectors
Communication Services
Health Care
Materials
Consumer Staples
Financials
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Percentages of Votes Against
Source: CGLytics Data and Analytics
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 07CEO Compensation
Analysis
Historical Overview
The absolute growth graph below shows the average
value of realised compensation as well as the average Index TSR rises whiles TGC and TRC falls
one-year Total Shareholder Return (TSR) for the
constituent companies.
The relative growth graph compares Total Realised
Compensation (TRC), Total Granted Compensation
(TGC) and TSR delta over the years.
Pay vs TSR: Absolute Growth
Total Granted Pay Total Realized Pay TSR
40% 10,000,000
30%
8,000,000
20%
Percentage
10% 6,000,000
EUR
0% 4,000,000
-10%
2,000,000
-20%
-30% -
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Years
Pay vs TSR: Relative Growth
TRC Growth TSR Delta TGC Growth
60%
40%
Average Growth
20%
0%
-20%
-40% 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017- 2018-
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Years
From this data we observe a slight but steady increase in However, over 2018 we note a decrease of 31
the total granted and realised pay since 2013, with a percentage points compared to 2017, the lowest level
higher increase for total realised pay from 2017 to 2018. since 2013. Many individual DAX constituents have
As for the average one-year TSR, we see an upward shown dramatic swings with regards to one-year TSR
trend on the index from 2014 to 2017, followed by a in 2018: the lowest drop was observed at Deutsche
precipitous fall during 2018. The one-year average TSR Bank Aktiengesellschaft (-56%), while the highest
for the index in 2017 achieved +13%, the highest since increase was seen at Wirecard AG (+43%). However,
2013 (+26%). index TSR gained 44% from 2018 to 2019 while both
total realised compensation and total granted
compensation fell by 14% and 17% respectively.
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 08CEO Compensation
Analysis
CEO pay seems to be more long-term focused
Pay Mix Design
CGLytics has perceived a steady change of DAX CEOs’ as a proportion of total TRC since 2015 (+8
compensation mix over the long-term, with a significant percentage points in 2017 for realised LTI). At the
change in the average composition occurring most same time, base salary as a proportion of total TRC fell
recently in 2019. over a five-year period, declining from 24% of average
TRC in 2013 to 18% in 2017, a drop of six percentage
The table below shows the breakdown of disclosed points. We also observe a similar drop in the
average realised pay for DAX CEOs from 2013 to 2019 short-term incentive component as a portion of total
by compensation component. We note primarily that the TRC year-over-year.
long-term incentive components have increased
CEO Pay Mix
Base Salary Realised STI Realised LTI
100%
80%
Percentage
60%
40%
20%
0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Years
Average CEO Pay Components for 2019
3,500,000
3,000,000
2,500,000
2,000,000
EUR
1,500,000
1,000,000
500,000
-
Base Salary Pension Other Realised STI Realised LTI
Pay Component
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 09CEO Compensation
Analysis
Compensation Mix: 2009 vs 2019
4.7%
23.4%
Salary
38.8%
Realised STI
2009 50.2% 2019 Realised LTI
56.5%
26.3%
SOURCE: CGLYTICS DATA AND ANALYTICS
It appears that companies in Germany’s largest cap The graph below displays that while the average
index are attempting to juggle the right mix of fixed, realised STI was larger than the average realised LTI in
short-term, and long-term incentives in their executive 2013 and 2014, this trend seems to have reversed
remuneration practices. In addition to the changes in the itself since 2015. As previously noted, long-term
proportion of total pay that the various pay components incentives are taking a more prominent place in
represent, we have also examined the relationship executive compensation design among the DAX
between realised STI and realised LTI in 2013-2019. constituents, hinting that the companies are
attempting to align pay with a longer-term focus.
Average Realised LTI vs STI
Realised STI Realised LTI
50%
Percentage of Total Pay
40%
30%
20%
10%
0%
2013 2014 2015 2016 2017 2018 2019
Years
SOURCE: CGLYTICS DATA AND ANALYTICS
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 10Pay for
Performance
The annual pay for performance study carried out by
CGLytics shows that most of the DAX companies have a
strong alignment between pay and performance.
Moreover, our analysis shows that the positive
alignment has improved during the 2019 fiscal year
compared to a three-year review.
Pay for performance review: 2017-2019
Pay for Performance Review 2019:
52% of the companies display alignment 36.67% of the companies display
between pay and performance alignment between pay and performance
24% of the companies display a conservative 26.67% of the companies display a
pay practice conservative pay practice
24% of the companies display misalignment 36.67% of the companies display a
between pay and performance. misalignment.
CGLytics has performed a study on the DAX index to
determine the relative degree of alignment between CEO
pay and performance in one year (2019) and three years
(2017-2019). The data and analytics suggest that four
companies display alignment between pay and
performance in both periods of studies. These
companies are Adidas AG, Volkswagen, Fresenius SE &
Co. KGaA and Deutsche Bank Aktiengesellschaft.
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 11Pay for
Performance
2019 Pay for Performance Alignment
CEO Total Realised Compensation vs Total Shareholder Return
below median TSR above median TSR
Linde plc
100th
Siemens
Merck
Adidas
Deutsche Post
VW
To t al Re al i se d Co m p e n sat i o n - Percentile Rank
HeidelbergCement
SAP
E.ON
Deutsche Telekom
Fresenius
Munich Re
Allianz
Vonovia
50th
Lufthansa
Henkel
Bayer
RWE
Deutsche Boerse
Fresenius Medical Care
Deutsche Bank
BMW
Continental
MTU
Daimler
Infineon
BASF
Covestro
0th
Beiersdorf
100th
below median compensation TSR - Percentile Rank below median compensation
Source: CGLytics Data and Analytics
2017-2019 Pay for Performance Alignment
CEO Total Realised Compensation vs Total Shareholder Return
below median TSR above median TSR
Linde plc
100th
SAP
Siemens
Beiersdorf
Adidas
HeidelbergCement
To t al Realised Co mpensatio n - Percentile Rank
Deutsche Post
Merck
VW
Daimler
Allianz
BMW
Fresenius Medical Care E.ON
50th
Henkel
Deutsche Telekom
Vonovia
BASF
Deutsche Boerse
Lufthansa
Continental
Bayer
Fresenius
Munich Re
Covestro
Deutsche Bank
Infineon
RWE
MTU
0th
Wirecard
100th
below median compensation TSR - Percentile Rank below median compensation
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 12DAX Index
Tracker Analysis
Deutsche Post AG has the most perfect RWE had the highest relative return in the index
alignment in the index
Our data suggests that Deutsche Bank has the Linde plc's CEO earned the highest in the index
relative least investment return in the Index at EUR 52 million
2019 Δ 2017-2019 2017-2019
Ranking: 2019
(2017)
DAX 2019 Year End
3YR Total Value of 100 eur
Total Realised Realised Investment
Compensation Percentrank Percentrank Growth 2017- 2017-2019 Percentrank Percentrank Compensation Percentrank Percentrank Made January
(mln eur) 2019 TSR Compensation Performance 2017 TRC Δ TSR Compensation Performance (mln eur) 3Y TSR Compensation Performance 1st, 2017
1(1) Deutsche Post AG 9.7 48% 86 90 8% 17% 68 69 26.9 21% 80 49 121
2(10) Vonovia SE 5.8 25% 54 59 2% -13% 50 21 17.9 71% 45 80 171
3(27) Bayerische Motoren Werke AG 4.2 9% 25 24 -54% 7% 15 52 20.3 -6% 62 35 94
Strong Alignment
4(24) SAP SE 7.7 40% 75 83 -64% 25% 8 87 38.8 52% 97 66 152
5(22) Adidas AG 10.3 61% 89 97 4% 48% 58 100 29.4 101% 87 90 201
6(6) Covestro AG 2.7 0% 4 14 -54% -35% 11 7 12.5 -30% 18 7 70
7(19) Volkswagen AG 8.4 31% 82 72 -18% 5% 36 42 25.4 42% 73 59 142
8(5) Fresenius Medical Care AG & Co. KGAA 4.9 18% 32 45 -33% 8% 25 56 19.4 -15% 59 25 85
9(8) Allianz SE 5.9 30% 57 69 19% 2% 75 35 21.3 59% 66 73 159
10(29) Daimler AG 3.6 15% 14 28 -72% 10% 0 66 24.9 -18% 69 18 82
11(18) Fresenius SE & Co. KGaA 6.0 20% 64 52 60% 32% 93 94 14.5 -30% 25 11 70
12(2) Deutsche Bank Aktiengesellschaft 4.4 1% 29 17 1% -3% 47 28 11.8 -53% 14 - 47
13(26) HeidelbergCement AG 7.9 26% 79 66 -19% 23% 29 80 27.2 -21% 83 14 79
14(4) Continental Aktiengesellschaft 3.9 -1% 21 10 -47% -26% 18 11 16.7 -32% 31 4 68
15(3) Bayer Aktiengesellschaft 5.2 26% 43 62 -7% 18% 43 73 16.0 -17% 28 21 83
16(7) Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft 6.0 45% 61 86 127% 39% 100 97 13.4 69% 21 76 169
Conservative
17(25) BASF SE 3.2 17% 7 34 -71% 9% 4 59 17.6 -14% 42 31 86
18(13)
Practise
Infineon Technologies AG 3.6 19% 11 48 -17% -22% 40 18 11.5 28% 11 52 128
19(11) Beiersdorf Aktiengesellschaft 2.4 18% 0 41 -33% -5% 22 25 29.4 35% 90 56 135
20(12) Deutsche Börse AG 5.0 37% 36 76 40% 7% 90 49 17.5 97% 38 87 197
21(16) RWE Aktiengesellschaft 5.1 50% 39 93 79% 6% 97 45 11.0 157% 7 97 257
22(15) MTU Aero Engines AG 3.7 63% 18 100 5% 25% 61 83 11.0 143% 4 94 243
23(20) Linde plc 52.9 39% 100 79 38% 4% 86 38 156.5 94% 100 83 194
24(30) Siemens Aktiengesellschaft 14.3 24% 96 55 34% 21% 83 76 34.5 11% 94 45 111
25(9) E.ON SE 6.4 16% 71 31 5% -23% 65 14 19.2 58% 56 69 158
Misaligned
26(23) Henkel AG & Co. KGaA 5.5 -1% 46 7 -19% 0% 33 31 18.4 -14% 52 28 86
27(21) Deutsche Telekom AG 6.1 3% 68 21 10% 9% 72 62 18.1 2% 49 38 102
28(14) Deutsche Lufthansa AG 5.5 -13% 50 3 3% -171% 54 0 17.0 47% 35 62 147
29(28) Merck Kommanditgesellschaft auf Aktien 10.6 18% 93 38 22% 26% 79 90 26.4 10% 76 42 110
30(17) Wirecard AG -19% 0 -147% 4 5.9 164% 0 100 264
SOURCE: CGLYTICS DATA AND ANALYTICS
From our analysis, the data suggests that the strongest The company with the worst investment performance
alignment was achieved by Deutsche Post AG, whose from our analysis is Deutsche Bank Aktiengesellschaft.
CEO earned a total realised pay of EUR 9.7 million for the EUR 100 invested in the company in 2017 would be
2019 fiscal year, earning the company a ranking of 86th worth EUR 47 in 2019. From our analysis, Deutsche
percentile. The company’s 2019 TSR was also 48%, Bank’s CEO’s realised compensation ranked 0 in the
which got the company a rank of 89th percentile in the index which was aligned with its TSR performance
DAX. From 2017 to 2019, TRC grew by 8% while TSR which also ranked 14th percentile in the index.
also increased by 17%. The cumulative compensation by
the company’s CEO is EUR 26.9 million, while the 3YR The CEO’s cumulative realised compensation was EUR
TSR is 21%, meaning that EUR 100 invested in the 11.8 million in 2017-2019, while the 3YR TSR was also
company in 2017 would be worth EUR 121 in 2019. -53%. From our data, we find that the Deutsche Bank
Deutsche Post did not announce any pay cut due to the Aktiengesellschaft CEO’s realised compensation
pandemic and did not submit any remuneration related increased by 1% while TSR dropped by 3%. Deustche
resolution in 2020. Bank had no remuneration related resolution on their
agenda in 2020.
The highest paid CEO for the 2019 fiscal year in the
index was the CEO of Linde plc (Steve Angel), who RWE Aktiengesellschaft had the highest investment
earned approximately EUR 52 million for the financial return of EUR 257 in the index. RWE CEO’s realised
year 2019, which earned the company a 100th compensation in 2018 was EUR 5.1 million, earning
percentile ranking in the DAX. The company’s TSR also the company a 39th percentile rank in the index. Its
ranked 79th percentile. While TRC grew by 39% from TSR in the same period was 50%, which gave the
2017 to 2019, TSR only increased by 4%. The data company a ranking 33rd percentile.
suggests that EUR 100 invested in the company in 2017
would be worth EUR 194 in 2019, as the company’s 3YR
TSR is 94%.
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 13Projected Pay for Performance
Alignments after Adjustments
CGLytics has projected the FY20 CEO pay for
performance alignments for the DAX index following the
pay cuts after COVID-19 and utilising the year-to-date
TSR for companies.
Projected Degree of Relative Alignment after Pay Adjustments
2019 Ranking Projected 2020 Ranking
60%
50%
40%
30% 55%
52%
20%
28%
10% 24% 17%
24%
0%
Aligned Misaligned Conservative
SOURCE: CGLYTICS DATA AND ANALYTICS
The graph shows that there is a 3-percentage point Two companies (MTU Aero Engines AG and
increase for companies aligned versus a 7-percentage Münchener Rückversicherungs-Gesellschaft
point decrease for companies that display misalignment Aktiengesellschaft) moved from conservative to
for the projected analysis. We also find a 4-percentage aligned;
point increase for companies displaying conservative
pay practice.
Five companies (Deutsche Telekom AG, E.ON SE,
Henkel AG & Co. KGaA, Merck
Three companies (Deutsche Bank Aktiengesellschaft, Kommanditgesellschaft auf Aktien and Linde plc)
Fresenius Medical Care AG & Co. KGAA and Vonovia moved from misaligned to aligned;
SE) moved from an aligned position to a conservative
position; The rest of the companies that performed pay cuts
did not change their ranking, reinforcing the
Three companies (Adidas AG, HeidelbergCement AG narrative that the pay cuts are not expected to
and Volkswagen AG) moved from aligned in 2019 to significantly affect pay outcomes as they are quite a
misaligned, which is interesting considering that negligible fraction of total compensation.
Adidas AG announced their CEO was forfeiting his
annual bonus in 2020. HeidelbergCement AG also
announced a 20% base salary cut for its CEO for the
second quarter of 2020. For both companies, their
performance data shows that 1-year TSR (YTD) has
also tanked heavily, perhaps contributing to their
relative rankings;
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 14Executive Positions
Breakdown
CEO average, Lower quartile, Median and Upper CFO average compensation increased from 2018 to
quartile compensation in the DAX dropped from 2019, Upper quartile increased by almost 100%
2018 to 2019
CGLytics’ analysis also considers the evolution of Both CFOs and COOs’ remuneration developed rather
average total realised pay of key executive positions stably in the mix, with a drop in 2018, when Directors
within the DAX index companies – Chief Executive holding these positions received on average 9% and
Officer (CEO), Chief Financial Officer (CFO), Chief 7% of the realised pay the companies gave away,
Operational Officer (COO), Chief Technology Officer respectively. The relative average compensation for
(CTO) and Other Executive Directors (OEB). The graph CFOs increased from 2013 until 2017 and has been
below shows that the share of the mix accountable for decreasing slightly since then. In 2019, CFOs took
CEO’s pay raised slightly between 2013 and 2015 and home 15% of the total pay, on average. Remuneration
fluctuated compared to total realised pay since then. In of all other executives has also been fluctuating in the
2018, CEOs received on average 31% of the whole total mix throughout the years. However, a general
realised pay in the DAX companies, which declined decrease can be seen from 2013 to 2019, when OEBs
slightly in 2019 to 27% of the mix. received on average 38% of total realised pay,
compared to 45% in 2013.
Average Total Realised Pay
100%
80% CEO
Percentage of TRP
CFO
60%
COO
40% CTO
OEB
20%
0%
2013 2014 2015 Years 2016 2017 2018 2019
SOURCE: CGLYTICS DATA AND ANALYTICS
The tables below show remuneration received by An average and 75th percentile CFO compensation
Executive Directors of the DAX index in 2018 and 2019 increased from 2018 to 2019, while median and 25th
financial years, broken down by positions and percentile values decreased for the same position.
percentiles. Compared to remuneration received in 2018, Both average and median, as well as 25th and 75th
average and median CEO compensation has decreased percentile values went up for COOs of the DAX
in 2019. companies between 2018 and 2019, while the same
values went down for Other Executive Directors.
Executive Remuneration FY2018 – Position Breakdown
Role Average 25th Percentile Median 75th Percentile
Chief Executive Office 10,036,253 6,122,733 7,059,500 9,556,250
Chief Financial Officer 2,883,886 1,965,500 2,754,137 3,917,941
Chief Operational Officer 2,167,803 1,155,600 1,181,916 1,760,000
Chief Technology Officer 5,201,000 - 5,201,000 -
Other Executive Board Member 12,350,378 7,518,250 11,298,314 16,425,261
SOURCE: CGLYTICS DATA AND ANALYTICS
Executive Remuneration FY2019 – Position Breakdown
Role Average 25th Percentile Median 75th Percentile
Chief Executive Office 8,406,587 4,888,000 5,949,000 8,395,194
Chief Financial Officer 3,270,013 1,890,157 2,634,000 6,020,648
Chief Operational Officer 2,714,691 2,083,287 2,853,700 3,279,237
Chief Technology Officer 4,568,150 3,203,725 4,568,150 5,932,575
Other Executive Board Member 11,630,929 6,555,564 11,252,000 14,056,052
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 15Board Composition and
Gender Diversity
Women now represent just over 30% of Supervisory
and Board seats among the DAX constituent
Utilities is the industry displaying the lowest levels of
gender diversity, while IT is the industry with the
highest
There is currently one female Chair in the DAX
There is still improvement to be made with regards to
executive positions held by women; there is no female
CEO in the DAX
Technology is the least represented expertise in the
index. Directors with Executive background have the
highest representation in the index
Another key governance issue for the DAX companies is Subsequently, we note that Dr. Simone Bagel-Trah
focused on Board composition and diversity, with an serves as the only female Chair of a Supervisory
emphasis on the current lack of female representation on Board at Henkel AG & Co. KGaA, while no females
Boards. Women now represent just above 30% of serve as CEOs of a DAX company at the time of the
Supervisory and Management Board seats among the report.
DAX-constituent companies, including employee
representatives – the number that has been slowly Utilising CGLytics’ data and analytics, we have been
raising since the adoption of the 30% Supervisory Board able to obtain an overview of the evolution of the
gender requirement in 2016. In view of a new proposal levels of gender diversity among both the Supervisory
from the government to expand such quota to also apply and Management Boards of the DAX firms in 2017-
to a Board level since 20213, this study has taken a 2020.
deeper dive into the level of gender diversity among
Board and executive leadership positions.
Average Gender Diversity
Male Female
80% 75% 74% 72% 70%
60%
Percentage
40%
30%
25% 26% 28%
20%
0%
2017 2018 2019 2020
Years
SOURCE: CGLYTICS DATA AND ANALYTICS
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 16Board Composition and
Gender Diversity
Taking a deeper dive into the distribution of the levels of We have also provided an overview of the evolution of
gender diversity among the DAX constituents, the graph gender diversity among the listed sectors over the
below shows in a more focused breakdown the previous four years.
percentage of seats held by women across different
sectors.
Female Representation by Sector
2020 2019 2018 2017
Information Technology
Utilities
Communication Services
Industrials
Sector
Consumer Staples
Health Care
Materials
Financials
Consumer Discretionary
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Percentage
SOURCE: CGLYTICS DATA AND ANALYTICS
In reviewing the data, we notice a definite upwards SAP SE accounts for the highest percentage of
trend with regards to the levels of gender diversity of the females on their Board – 43.5%.
DAX 30 component companies. Notwithstanding, it is
also evident that some industries continue to display a The Communication Services sector accounts for the
conservative level of gender representation. For second highest level of gender diversity in the DAX
example, Utilities is the sector currently displaying the index. Per CGLytics data, we observed a decrease in
lowest level of gender diversity, represented by two female representation on the Board from 2017 to
companies in the index - E.ON SE and RWE 2018, falling from 36.67% to 30.3%. However,
Aktiengesellschaft. The female representation for their bouncing back in 2019 and 2020 we note that the
Boards has only increased by 0.5 percentage points average level of Supervisory and Management Board
since 2017 and stands at 25.5%. gender diversity has increased. At the time of the
report, the sector was represented by Deutsche
The industry displaying the highest level of gender Telekom AG, with 39.3% of female Directors.
diversity among the DAX index is Information
Technology. This sector displayed an increase of 13.1
percentage points from 28.07% in 2017 to 41.2% in
2020, setting the standard among the DAX sectors.
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 17Analysis of the DAX
Board Expertise
Expertise on Boards poses another aspect of interest. As
the recent case of Wirecard AG showed, lack of diverse
expertise representation on a Board can be a red flag
and pose risks to the business. As CGLytics’ data shows,
Supervisory and Executive Boards of the DAX
companies focus on having executive and leadership, as
well as non-executive and international expertise, while
crucial technology, governance and financial expertise
account on average for less than 30% of the
representation on Boards.
DAX - Board Expertise
# of Directors % of Directors
700 120%
600 100%
Number of Directors
500
80%
Percentage
400
60%
300
40%
200
100 20%
0 0%
Expertise
SOURCE: CGLYTICS DATA AND ANALYTICS
Technology expertise, brought by Directors who have Looking at governance expertise, given by CGLytics to
had extensive experience in technology roles during their Directors who have worked as a Company Secretary,
career, is represented predominantly on Boards of Legal Counsel and/or in a position with compliance
Information Technology and Communication Services responsibilities, 22% of the DAX Directors have such
sectors. However, considering the increasing role of expertise. Furthermore, six companies have a
technology and related risks that companies and their separate committee to overlook the best practices and
clients face, most of the companies show little challenges of Corporate Governance, ESG
representation of the expertise on their Boards – only (Environment, Social and Governance) and/or
18% of the DAX Directors have relevant experience and Compliance. 26% of the Directors have financial
knowledge. Some companies, such as Vonovia SE, experience, with each company having at least one
currently have no members on the Board with Director with financial expertise.
technological expertise. Six companies established a
separate committee on the Board to observe the latest
technological trends and advise Boards on technological
questions.
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 18Case Study:
WIRECARD AG
Wirecard, a classical case study for Corporate
Governance, highlights why having governance
pitfalls can prepare a recipe for a corporation’s
downfall.
Wirecard, a former Dax constituent, earlier this year filed
for insolvency. An earlier study CGLytics did in June 2020
suggested that Wirecard has failed in its mandate to
increase shareholders’ value. Instead, Wirecard wiped
off millions of dollars of profits for their investors due to
the scandal that rocked the company. Notable among
several things that we uncovered that could have
potentially led to this, were the gaps in the Board’s
expertise. The Board essentially scored low on Financial
and Governance expertise, the two essential skills for
successfully overseeing financial compliance.
Board Expertise
Expertise Skills
y Non-
log Exe
no cu
tiv
ech e
T Information Tech
Corporate
Development (3)
Technology (5)
Credit M
5 Advisory (5)
hip
Ex
ers
ecu
Innovation (2)
Lead
tive
Finance (3)
0 Investment
Management (4) Academ Huma M&A(1)
Industr
nce
rna
y a
Operations (5)
nd
ve
Admin Production(1)
Project Man Bankin
Go
Se
ct
Product
or
In Development (4)
Audit(1) Mark Sales(1)
ter
al na
nci tion
Fina al
SOURCE: CGLYTICS DATA AND ANALYTICS
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 19Conclusion
The German DAX index has been hit by the COVID-19 Our analysis also showed that more than a third of the
crisis, which tested its constituents’ readiness for a DAX companies paid their executives more than the
challenging market development. The companies that company’s performance dictates in the last three
were affected the most by the changing demands chose years.
to use the aid offered by the German government in the
form of bailout packages or syndicated loans to survive Finally, the report looked at gender diversity and skills
these uncertain times. To reduce costs, companies have representation on Boards of the DAX constituents.
also announced pay cuts for members of its While in general the index is moving towards better
Management and/or Supervisory Boards. However, as a gender representation on the Board level, potential
deeper analysis showed, such pay reduction efforts implementation of the government’s proposal to
account for a small fraction of total pay that the top increase the number of women on the Executive
management is receiving, which poses doubts as to how Board will require further effort from companies.
effective such measures are. Regarding the skills representation on Boards, all DAX
companies should pay more attention to Directors
Looking at the historical data regarding the DAX index with expertise in Finance, Technology and
CEOs’ compensation, we saw that the total realised pay Governance. The case study of Wirecard AG is just
was growing steadily since 2009 until 2018 and showed another example that proves the need for this
a decline in the last year. German companies do not expertise, which is widely misrepresented on the DAX
disclose CEO pay ratios, a practice which is binding in index’ Boards.
the UK and France; however, studies show that German
CEOs pay ratio compared to an average employee is one
of the highest in Europe4.
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 20APPENDIX
Our methodology on Total Realised Compensation Total Shareholder Return (TSR)
explained Total shareholder return is defined as the total return of a stock to an
The realised compensation includes all realised components of investor. It combines annual changes in stock price and dividends
compensation in the year of interest. It is defined as the sum of total paid and is expressed as an annualised percentage. This is calculated
indirect compensation realised and total direct compensation realised over a one-year (1Y) and three- year (3Y) period. The growth in 3Y
for one year. It consists of base salary + benefits + other TSR is calculated by the percentage points of difference between the
compensation + bonus + deferred cash bonus + deferred share bonus latest year and three years prior. Please note that all figures have
+ value of performance/ restricted shares vested + value of been rounded up in the table outlining the CEO pay for performance
performance/restricted options exercised. Total realised pay is analysis.
calculated based on performance indicators that have been met
during the performance period. Most companies clearly disclose the Investment return of EUR 100
performance period and vesting period, and the percentage that will This figure looks to calculate how much a EUR 100 company
be paid in the next year. For example, for shares that will vest on investment would be worth over a period by indexing the TSR over
March 31, 2020, but the performance period ends on December 31, multiple years.
2019 has been included in realised pay 2019 When the company
does not disclose the average share price over the last quarter, we
use the company year-end share price to calculate the value of the
vested multiyear share packages. In line with Swiss practices,
adjustments are usually made in the following year when the
company discloses the exact share price on which the shares vested.
For options, we calculate realised pay when the options have been
effectively exercised. In the event where there were two CEOs in a
year for a company, for example due to a change in CEO, we explored
the companies on an individual basis and annualised compensations
depending on the issue at hand to make the total realised
compensation as realistic as possible.
REFERENCES
1
https://www.bloomberg.com/news/articles/2020-03-25/germany-closes-in-on-historic-bailout-to-counter-virus-blow
2
https://www.reuters.com/article/us-health-coronavirus-adidas-kfw/adidas-gets-3-billion-euro-government-backed-loan-suspends-dividend- idUSKCN21W2JJ
3
https://www.euractiv.com/section/global-europe/news/german-family-minister-wants-to-expand-gender-quotas-for-top-jobs/
MAXIMISING SHAREHOLDERS’ VALUE FOR THE LONGER TERM | GERMAN’S BLUE-CHIP INDEX, REGULATORY LANDSCAPE AND PAY FOR PERFORMANCE STUDY 21CGLytics is a leading Corporate Governance Analytics provider,
delivering unique insights, real-time data and benchmarking tools,
in a single software solution.
CGLytics’ data and analytics are trusted and used worldwide by
the leading independent proxy advisor Glass Lewis for their Say
on Pay recommendations in their Proxy Papers.
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please contact us at:
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Web: cglytics.com
Article produced by
Jekaterina Spiridonova
Corporate Governance Analyst
Edna Frimpong,
Lead, Analyst, EMEA
Aniel Mahabier,
CEO, CGlytics
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