should supervisory board remuneration follow management ... · part of the strategic shift from an...

Stephan Meißner

Master Thesis

Title

Should Supervisory Board Remuneration follow

Management Board Remuneration Practice?

A thesis submitted to the Bucerius/WHU Master of Law and Business Program in

partial fulfillment of the requirements for the award of the Master of Law and Busi-

ness (“MLB”) Degree.

End Date: 07. July 2010

First Examiner Dr. Carsten Jungmann

Second Examiner: Prof. Dr. Klaus Brockhoff

Word count: 13,600

Catalogue of the Thesis

I

Table of Content

Table of Content ..................................................................................................................... I

List of Graphics ................................................................................................................... III

List of Abbreviations ........................................................................................................... IV

Introduction ............................................................................................................................ 1

1.1 Why Supervisory Board Remuneration should be an Issue ..................................... 1

1.2 Focus and Purpose of this Thesis ............................................................................. 3

2 Tasks and Responsibilities of the Supervisory and Management Board in

German Stock Corporations .......................................................................................... 5

2.1 Management Board................................................................................................... 5

2.2 Supervisory Board .................................................................................................... 7

3 Legal and quasi-legal Rules pertaining to the Remuneration of Management and

Supervisory Board Members ....................................................................................... 10

3.1 Stock Corporation Act ............................................................................................ 10

3.1.1 Management Board .................................................................................... 11

3.1.2 Supervisory Board ...................................................................................... 13

3.2 German Corporate Governance Code..................................................................... 14

3.2.1 Management Board .................................................................................... 14

3.2.2 Supervisory Board ...................................................................................... 15

4 Remuneration of Supervisory Board Members in Germany ................................... 18

4.1 Absolute Remuneration .......................................................................................... 18

4.2 Composition of Remuneration ............................................................................... 22

4.3 Is there a Rationale for Variable Pay for Supervisory Board Members? ............... 25

4.3.1 The Economic Rationale for Variable Payment ......................................... 26

4.3.2 After the MobilCom Ruling: What Incentives are still allowed?............... 28

5 Worth a try? Applying Management Board Remuneration Practice to

Supervisory Board Members ....................................................................................... 32

5.1 Appropriateness of Remuneration .......................................................................... 32

5.1.1 Qualification-based remuneration .............................................................. 33

5.1.2 Work Load and Responsibilities ................................................................ 36

5.1.3 Diversity Requirements .............................................................................. 38

5.2 Performance-based Remuneration Elements .......................................................... 39

5.2.1 How to measure successful Control and Advisory? .................................. 39

5.2.2 Can Diversity increase the universe of performance indicators? ............... 42

5.2.3 Provide Committee-adjusted Remuneration Elements a Solution? ........... 44


II

6 Summary ........................................................................................................................ 48

6.1 Current Trends in the Annual General Meeting Season 2010 ................................ 48

6.2 Main Findings: Key Points, Ideas and Arguments ................................................. 49

6.3 Crucial Aspects for Future Discussions.................................................................. 53

Appendix .............................................................................................................................. VI

A1 One-tier, Two-tier and Mixed Systems of Board Structures .................................... VI

A2 Understanding Diversity and its Aspects in Corporations ....................................... VI

A3 List of Interview Partners ........................................................................................... VII

Bibliography ...................................................................................................................... VIII

B1 Court Decisions .......................................................................................................... VIII

B2 Articles and Books ..................................................................................................... VIII

B3 Internet Sources ........................................................................................................... XII

B4 Newspaper Articles .................................................................................................... XIV


III

List of Graphics

Graphic 1: Total Remuneration of the Chairman of the Supervisory Board DAX 2009 .... 19

Graphic 2: Functional Differentiation in DAX Supervisory Boards 2009 .......................... 20

Graphic 3: Remuneration of a Non-executive Chairman .................................................... 21

Graphic 4: Origin of Supervisory Board Members DAX 2009 .......................................... 22

Graphic 5: Fixed Compensation as Part of Total Remuneration DAX 2007 ...................... 23

Graphic 6: Variable Pay as Part of Total Remuneration ..................................................... 24

Graphic 7: Fixed Remuneration as share of Total Remuneration in 2009 .......................... 31

Graphic 8: QIAGEN N.V. Skill Set Card ............................................................................ 34

Graphic 9: Composition of Performance-based Remuneration at TNT N.V. ..................... 43

Graphic 10: Overview on Board Structures ........................................................................ VI

Graphic 11: Survey on Diversity ......................................................................................... VI


IV

List of Abbreviations

AG Die Aktiengesellschaft

BB Betriebsberater

BGH Bundesgerichtshof

BilMoG Bilanzrechtsmodernisierungsgesetz

DBW Die Betriebswirtschaft

DB Der Betrieb

EBIT Earnings before Interest and Tax

EBITDA Earnings before Interest, Tax, Depreciation and Amortization

ECFR European Company and Financial Law Review

ECGF European Corporate Governance Forum

E.g. Example given

EPS Earnings per share

Et al. Et alii

Et seq. Et sequentes

EVA Economic value added

EU European Union

FAZ Frankfurter Allgemeine Zeitung

GCGC German Corporate Governance Code

GWR Gesellschafts- und Wirtschaftsrecht

HGB Handelsgesetzbuch

HBM Harvard Business Manager

http Hypertext Transfer Protocol

KonTraG Gesetz zur Kontrolle und Transparenz im Unternehmensbereich

LG Landgericht

No. Number

NZG Neue Zeitschrift für Gesellschaftsrecht

OLG Oberlandesgericht

P. Page

ROCE Return on Capital Employed

PWC PriceWaterhouseCoopers

ROI Return on Investment

SCA Stock Corporation Act

TransPuG. Transparenz- und Publizitätsgesetz


V

TUG Transparenzrichtlinien-Umsetzungsgesetz

UK United Kingdom

US United States

USA United States of America

Vol. Volume

VorstAG Gesetz zur Angemessenheit der Vorstandsvergütung

vs. Versus

WpHG Wertpapierhandelsgesetz

WM Zeitschrift für Wirtschafts- und Bankrecht

ZGR Zeitschrift für Unternehmens- und Gesellschaftsrecht

ZHR Zeitschrift für das gesamte Handels- und Zivilrecht

ZIP Zeitschrift für Wirtschaftsrecht

Introduction

1

Introduction

1.1 Why Supervisory Board Remuneration should be an Issue

Ongoing corporate scandals, the subprime crisis and corporate failure drive the

discussion on the role and self-understanding of the supervisory board in Ger-

man stock corporations1. At the same time, recent articles in Handelsblatt

2and

in ManagerMagazin3 criticize the remuneration practice of supervisory board

members as being unreasonably high and accuse board members of misma-

nagement. And how does the legislator react? As a response, additional proce-

dural requirements, new responsibilities and strict competency pre-requisites

are now stipulated in the relevant law4. But does this reform cover all relevant

aspects?

The current reforms pertaining to the supervisory board aim at enhancing pro-

fessionalism, diversity and independence. Looking from a top level perspec-

tive, the organ receives more rights, responsibilities and influence on the de-

velopment of the company. Surprisingly, within this debate, remuneration is a

non-topic for the legislator. The main article § 113 Stock Corporation Act

(SAC) remains unchanged. However, as it will be depicted in the thesis, remu-

neration and especially the structure of remuneration can be a vital instrument

to increase the quality and to foster the acceptance and independence of the su-

pervisory board5. Furthermore, the thesis shows how specific remuneration

elements reflecting the need for qualification and diversity could be imple-

mented to support the desired quality improvement. The current debate fails to

account that remuneration of supervisory board members must be an integral

part of the strategic shift from an old-boys club to an efficient control and advi-

sory body in a company. Whereas committee work gains importance, the struc-

tural question of adjusted remuneration has yet not been addressed. A commit-

tee-specific principal-agent analysis helps to understand the rationale for ad-

justment.

1 FTD (02.02.2010): p. 20.

2 Handelsblatt (08.04.2010): p. 1-2.

3 ManagerMagazin Online (21.04.2010).

4 E. g. financial expert, Law on Appropriateness of Management Board Remuneration.

5 Supportive Plagemann (2008): p. 3-4.

http://dict.leo.org/ende?lp=ende&p=Ci4HO3kMAA&search=criticise&trestr=0x8002

Introduction

2

Already Hüffer (1997) asks when the legislator will re-think supervisory board

remuneration regulation given the changes in tasks, responsibilities and liabili-

ties6. So far, the legislator has only addressed the remuneration of the manage-

ment board but not of the supervisory board7.

Taking a look back to the development of German corporate law, remuneration

of supervisory board members has been a topic several times8. It is interesting

to learn how the discussions evolved over time: starting in 1965 main political

parties promoted a cap on remuneration pointing out that supervisory board

members were paid unreasonably high9. This initiative was in line with the in-

terpretation of the relevant corporate law passage § 113, I, 3 SCA which aimed

at limiting compensation10

. However, the initiative lacked sufficient political

support, thus, ended before it really started. The same holds true for the idea to

tie supervisory board remuneration to the remuneration of the management

board11

. The current debate on remuneration takes only part in the German

Corporate Governance Code (GCGC) but not on the Parliamentary stage. To

the contrary, management board compensation just saw changes in the legal

framework as well as in the GCGC. The possible impact of this legislation

shall be discussed in this thesis.

This historic perspective proves that the perception of the remuneration of su-

pervisory board members is either a non-topic or a topic with a strong negative

bias. On this ground, a comprehensive change to a modernized remuneration

framework constitutes a considerable challenge. It needs to be explained that

the new role of the supervisory boards demands a new remuneration concept.

6 Hüffer (1997): p. 244-245.

7 Gesetz zur Angemessenheit der Vorstandsvergütung (VorstAG) implemented June 2009.

8 For an overview see: Lieder (2010): p. 116 et seq.; also in: Bayer/Habersack (2007): p. 389-

429. 9 Lieder (2006): p. 874-877.

10 Hüffer (2010): p. 606; Plagemann (2008): p. 108.

11 For broad introduction and discussion of political initiatives 1960-1968 see Geßler (1978): p.

63.

Introduction

3

1.2 Focus and Purpose of this Thesis

In the light of the current debate, this thesis attempts to contribute new ideas

for supervisory board remuneration in German stock corporations. It shall de-

liver an insight into the rationale for supervisory board remuneration in general

and its future development. The thesis shall explicitly take into account the im-

pact of the recent reforms in Germany related to the appropriateness of man-

agement board remuneration and the principles stipulated therein. The discus-

sion on increased professionalism and enhanced responsibilities of the supervi-

sory board shall be recognized as a major input factor for remuneration policy.

The same holds true for diversity as impact factor of corporate development. In

order to gain useful insights into remuneration policy, the thesis addresses three

sub-questions, before trying to apply management board remuneration practice

to supervisory board members.

The three sub-questions are as follows:

1. Comparing tasks and responsibilities of supervisory board and man-

agement board members, is there an argument for a unified remunera-

tion framework?

2. What is the legal framework in Germany for supervisory board and

management board remuneration?

3. Should the rules for management board remuneration be applied to de-

fine supervisory board remuneration?

The thesis is organized as follows. In part two and three, the tasks and respon-

sibilities of the supervisory and management board shall be discussed, in close

connection with the legal framework for remuneration policies of both organs.

Part four provides an overview on the status quo of supervisory board remune-

ration in German companies listed in the Deutsche Aktienindex (DAX-30) with

a first focus on the structure and in particular the variable pay elements.

Introduction

4

In part five of the thesis, an attempt is made to develop new ideas and connec-

tors for supervisory board remuneration in the light of current impulses and

trends. Implications from management board remuneration restrictions shall be

discussed. The thesis is concluded by a summary of key findings and sugges-

tions for further discussions.

To limit the scope and workload of this thesis, expressively not discussed will

be any implication arising from co-determination12

. In addition, no own empir-

ical research is included in this thesis. Relevant data and information are col-

lected from consulting firms and reputable data providers. The DAX-30 com-

panies are used as observation panel. Examples from other jurisdiction are used

to illustrate ideas and concepts which could be appropriate for Germany. Prin-

ciples and guidelines stipulated by the European Union and its organization are

presented in the context of the national German law but not in a separate chap-

ter to avoid redundancies. In regard to industry specific regulation, banking, in-

surance and financial services firms affected by special regulatory require-

ments are not explicitly addressed in the thesis. Laws and regulations are dis-

cussed at status quo, only in some cases a historical perspective is added where

it is either necessary or provides added-value for understanding.

Besides taking reference to academic literature, a number of interviews with

professionals dealing with supervisory board questions have been conducted to

ensure the practical relevance of this thesis. These professionals include board

consultants, corporate lawyers and secretaries as well as current/past members

of supervisory boards13

.

12 Also Bischof (2006) neglects this aspect in order to focus on the remuneration question it-

self; Jungmann (2006) presents a rationale for distinguishing between structural problems

and problems arising from co-determination in German stock corporations (p. 451-457). 13

A list of interview partners is compiled in the annex.

Tasks and Responsibilities of the Supervisory and Management Board in German Stock Corporations

5

2 Tasks and Responsibilities of the Supervisory and Manage-

ment Board in German Stock Corporations

Despite the majority of other countries, German stock corporations (Aktienge-

sellschaft) have a mandatory two-tier system with a management board (Vors-

tand) and a supervisory board (Aufsichtsrat)14

. This system is also found in

other countries like the Netherlands or in Austria15

. The major source of law is

the Stock Corporation Act (SCA) and, as a supplementing element of non-

statutory law, the German Corporate Governance Code (GCGC). Both regula-

tions are closely connected as § 161 SCA directly refers to the GCGC.

In this part of the thesis, the tasks, rights and responsibilities of both boards

shall be explained and compared. The comparative approach is essential in re-

gard to the question of a unified remuneration system following the same prin-

ciples. The underlying rationale for the questions is that only equal tasks

should be compensated equally. This question is not only directed towards the

absolute amount but also towards the structure, ergo the components of remu-

neration16

.

2.1 Management Board

The core task of the management board is defined in article § 76 SCA: “The

Management Board shall manage the company under its own responsibility”.

Section 4.1 of the GCGC expands on this by stating that “the management

board is responsible for independently managing the enterprise with the objec-

tive of sustainable creation of value and in the interest of the enterprise, (…)”.

Thus, the function and the goal of the management board are set by law.

But before looking at the tasks and responsibilities in detail, it is worth looking

at the minimum requirements for persons serving on the management board.

Interestingly, the SCA describes only a low hurdle for this (§ 76, 3 SCA).

14 For illustration of board structures see Appendix 1.

15 Hopt et al. (2004): p. 3-6.

16 An introduction to this question can be found in: Dauner-Lieb/v. Preen/Simon (2010).


6

However, additional, corporate specific requirements can be stipulated in the

articles of association17

. A simultaneous membership in both organs is not legal

(§ 105 SCA ). The GCGC contains no additional requirements for management

board members. It is worth noting that in regard to supervisory board members,

statutory as well as non-statutory laws contain much stricter regulation18

.

The role of the management depicted in article § 76 SCA is coined Lei-

tungsmacht of the management board19

. It includes corporate planning, devel-

opment and strategy; organization and coordination of corporate units; the im-

plementation of an appropriate risk management system to ensure monitoring

of business risks and corporate goals20

. Therefore, the management acts inde-

pendently under its own responsibility as a quasi entrepreneur21

. The compre-

hensive interpretation is commonly acknowledged22

. Other functions of the

management board are bookkeeping and the presentation of the financial re-

ports.

Managing a company is associated with risk. Article § 93 SCA governs the lia-

bility standard for the members of the management board. If managers fail to

apply “the due care of a diligent and conscientious manager” (§ 93,1 SCA)

whilst running the company, they can be held liable23

. Article § 93 SCA also

contains the business judgment rule meaning that a director is not liable in case

of a well-informed, bona fide business decision24

.

The GCGC stresses the duty of the management board to communicate and

cooperate with the supervisory board but states no other major obligations not

covered by statutory law. The obligation to inform the supervisory board and

17 Hüffer (2010): p. 397-398.

18 e.g. GCGC section 5.4.1.: “(…) care shall be taken that the Supervisory Board, at all times,

is composed of members who have the required knowledge, abilities, and expert experience

to properly complete their tasks.”; furthermore SCA § 100,5; § 319a HGB since 25. May

2009 (BilMoG); for general discussion see: Theisen (2009): p. 81. 19

Hüffer (2010): p.383-385. 20

van Kann et. al. (2005): p. 70. 21

Raiser (1996): p. 552. 22

Hüffer (2010): p.383-385. 23

Management liability in detail is beyond the scope of this thesis. 24

Hüffer (2010): p. 493-494.


7

discuss major business decisions has increased in importance over the last

years25

.

2.2 Supervisory Board

Compared to the management board the role of the supervisory board is rather

broad and wake26

. In essence, the core legal functions are to supervise and to

dismiss as well as to appoint the members of the management board27

. Again,

major sources of law are the German Stock Corporation Act (SCA) and the

German Corporate Governance Code (GCGC)28

.

In article § 111 SCA, the main duties and responsibilities of the supervisory

board are defined. The main function of the supervisory board is to control the

management of the company, as stated in § 111, 1 SCA. In addition, the super-

visory board has a veto right for pre-defined business decisions29

. Thus, the

management needs to find the consent of the supervisory board in decisions of

fundamental importance30

. The articles of association shall contain such busi-

ness decisions. This is stipulated in § 111, 4 SCA.

Looking to the control function of the supervisory board in detail, the Bundes-

gerichtshof (BGH) has developed through court rulings a clear picture of this

rather broad term. The BGH divides the control function into an ex-post con-

trol task and an ex-ante or preventive monitoring task31

. The ex-post control is

primarily concerned with the past actions of the management. In this respect,

article § 90 SCA governs the information rights of the supervisory board mem-

bers towards the management board. This particularly includes information on

the profitability of the company, the progress of business and relevant transac-

tions with material impact on the company’s position. The supervisory board

ex-post analysis is focused on the lawfulness of material business decisions and

25 Ringleb/Kremer/Lutter/v. Werder (2010):p. 113-118.

26 Hopt/Leyens (2004): p. 136-138.

27 Hüffer (2010): p. 589-602; see section 5.1. GCGC; Plagemann (2008): p. 11-22.

28 See Section 5 of the German Corporate Governance Code.

29 This amendment is an element of the Transparenz- und Publizitätsgesetz reform in July

2002. 30

See section 5.1.1 German Corporate Governance Code. 31

BGH II ZR 175/95 (21.04.1991): p. 244-257; BGH II ZR 188/89 (25.03.1991): p. 127-137.


8

the truth and fairness of accounting principles applied. This includes the com-

piled accounting reports32

within the fiscal year.

Moreover, the ex-post control comprises also the function of representation of

the company vis-à-vis the management both in and of court as defined in ar-

ticle § 113 SCA.

The ex-ante control function of the supervisory board is intended to be an in-

strument of ongoing advice and consultation for the management33

. Therefore,

the supervisory board has a limited, but direct impact on the development of

the company and its strategic position in the market34

. Lohse (2005) points to

several examples of corporate failure where ex-ante control was not performed

properly by the supervisory board35

.

Evidence and support for this interpretation can be found in § 90, 1 SCA and in

section 5.1.1 of the German Corporate Governance Code. Article § 90, 1 SCA

states that the management board reports to the supervisory board on “intended

business policy and other fundamental matters relating to the corporate poli-

cy”. This sentence is a direct result of the Gesetz zur Kontrolle und Transpa-

renz im Unternehmensbereich (KonTraG) reform implemented in May 1998.

Section 3 of § 90 SCA even allows each individual member of the supervisory

board to request at any time a report on substantial matters and affaires of the

company. Therefore, supervisory board members have an investigative instru-

ment at hand to obtain information and influence decision making in the com-

pany. Furthermore, section 5.1.1 of the GCGC explicitly mentions the in-

volvement of the supervisory board in decisions of fundamental importance.

However, § 105 SCA draws a distinctive line between the supervisory board

and the management board so that the management is still in charge of operat-

ing the business36

.

32 Hüffer (2010): p. 589-597.

33 Hüffer (2010): p. 589-597.; Säcker (2008): p. 2816-2817.

34 Lutter (1995): p. 287-309; Henze (2005): p. 165-167.

35 Lohse (2005): p. 11-12.

36 Hüffer (2010): p. 559-561; Witte/Hrubesch (2004): p. 725-732.


9

It is highly disputed to what extend the supervisory board still acts as control

organ37

or has evolved into the role of a co-entrepreneurial38

organ with all its

implications on remuneration39

. Besides control and advisory tasks, the su-

pervisory board appoints and dismisses the members of the management board

(§ 84 SCA). It is broadly accepted that this task includes succession planning

and the constant monitoring of the performance of each member of the man-

agement board. The GCGC even stipulates succession planning as a specific

task of the supervisory board. Sihler (2001) expands on the argument by stress-

ing that the identification and subsequent selection of appropriate board mem-

bers is the most relevant task of a supervisory board40

. The underlying argu-

ment must be seen in the direct impact of such a decision on the business per-

formance of the company in the future.

As a summary, the supervisory board in the German two-tier system is primari-

ly concerned with control tasks and responsibilities. In addition to this, the su-

pervisory board provides advice for the management. But only in cases of fun-

damental importance the supervisory board is actively involved in the decision

making process directly related to ongoing business decisions.

Having discussed the role of the supervisory and management board, the first

questions to which extend a unified remuneration framework would be justified

can be answered. Contrasting the tasks and responsibilities of the supervisory

and management board, only a weak argument for a unified remuneration

framework can be concluded. Both boards have distinctive roles in the two-tier

system which does not allow for a comparable remuneration scheme or struc-

ture. Remuneration must reflect task, responsibilities and legal functions.

Therefore, it is interesting to see how the legislator deals with the regulation on

remuneration for both boards.

37 Säcker (2008): Der Aufsichtsrat hat nicht die Aufgabe, den Vorstand der Aktiengesellschaft

unternehmerisch anzuspornen und ihn wie einen lahmen Gaul zum Sieg zu tragen; er ist

vielmehr als Kontrollorgan zu besonderer Vorsicht (Supervision und Compliance) ver-

pflichtet und hat das Gesellschaftsvermögen vor zu riskanten Geschäften zu schützen (p.

2814). 38

Dauner-Lieb/v. Preen/Simon (2010): p. 379-381; critical view in: Säcker (2008): p. 2814-

2816. 39

Vetter (2008): p. 1, 5. 40

Sihler (2001): p. 13.

Legal and quasi-legal Rules pertaining to the Remuneration of Management and Supervisory Board Members

10

3 Legal and quasi-legal Rules pertaining to the Remuneration

of Management and Supervisory Board Members

Although globalization has lead to a soft conversion of remuneration systems

and levels, the main regulation for this question is still national. Prima vista,

the trend of harmonization can be perceived without any doubt but by paying

attention to the details of national laws a considerable number of differences

occur and seem to persist. And the European Union (EU) does not aim to regu-

late remuneration in a mandatory way41

. A simple reason for this might be seen

in the different corporate governance structures – one-tier vs. two-tier – across

Europe which makes it difficult to set up a unified remuneration basis. There-

fore, institutions like the European Corporate Governance Forum (ECGF) op-

erate a principle-based approach for setting remuneration rather than providing

strict regulations on it. ECGF promotes principles like the independence of

non-executive directors, the set-up of a professional remuneration committees

and reasonable structuring of performance-based incentive payments42

. The

German legislator has incorporated these principles into national statutory law.

The first part of this section deals with the regulation on remuneration com-

piled in the German Stock Corporation Act. The second part focuses on the

recommendations expressed in the German Corporate Governance Code. In

both parts, the rules pertaining to the remuneration of the supervisory and the

management board will be depicted.

3.1 Stock Corporation Act

The Stock Corporation Act contains the main clauses on remuneration of man-

agement and supervisory board members. Whereas the clauses pertaining to the

remuneration of the supervisory board are rather of historic nature, the clauses

dealing with the remuneration of the management board have seen a major

41 EUCGF (2009): p. 2: The substance of director remuneration should not be regulated in a

mandatory way at EU level. It is for companies and their shareholders to determine what

pay structure and levels are appropriate for their directors in light of their particular cir-

cumstances and different practices and traditions in Member States are to be respected. 42

See EUCGF (2009).


11

change in 200943

. This sub-section starts with the management board and con-

tinues with the supervisory board.

3.1.1 Management Board

Management board remuneration is one of the hottest topics in German corpo-

rate law. Driven by the assumption that extraordinary high and excessive com-

pensation packages triggered the current financial crisis, politicians and public

opinion leaders initiated multiple legal acts to restrict remuneration schemes

and enhance transparency. The Law on the Appropriateness of Management

Board Remuneration (VorstAG)44

is an immediate result of this movement.

Incorporated in § 87 SCA, VorstAG sets a strict guidance for the supervisory

board how to fix the remuneration of the management board. The remuneration

of a member of the management board must reflect the individual performance

and tasks, the economic situation of the company, and must not be unreasona-

bly high (§ 87 SCA). These three basic elements together constitute the crite-

rion of reasonableness45

. In addition, the payment structure must be oriented

towards long-term sustainable economic development of the company (§ 87, 1

SCA)46

. Both long-term and short-term incentives are allowed to stimulate

management behavior. In regard to the overall criterion of reasonable pay Ho-

haus/ Weber (2009) highlight that a market competitive payment and payment

structure alone is not sufficient to meet the stipulated criterion of reasonable

pay. The supervisory board is obliged to check if the current compensation le-

vels are a result of a functioning market or not47

. Moreover, according to the

legislator, reasonable pay is to be justified within the German market48

. Keep-

ing in mind that the legislator tries to increase diversity in German boards, this

limitations comes with surprise as it hinders German companies to attract po-

tential foreign managers. According to Hohaus/Weber (2009), a supervisory

board could try to provide evidence in such a situation that the international

43 E.g. Law on the Appropriateness of Management Board Remuneration (VorstAG).

44 Incorporated in Stock Corporation Act coming into force on 05. August 2009.

45 Hohaus/ Weber (2009): p. 1516.

46 See section 4.2.3 of the GCGC.

47 Hohaus/Weber (2009): p. 1516.

48 BT-Druck 16/13433: p. 15.


12

market requires an unreasonable high remuneration, and thus, justify along §

87, 1 the unreasonable pay in such a situation49

.

By introducing the aspect of individual performance in the law50

, the legislator

paves the way for increased differentiation among board members. The legisla-

tor hereby accounts for the increased need for specialists in certain business

fields and wants supervisory board members to be aware of that51

. In regard to

reasonable total compensation, the regulator aims at a horizontal and vertical

comparison. The horizontal perspective comprises a peer-group review, whe-

reas, the vertical perspective focuses on the internal hierarchy and compensa-

tion in a firm52

. As described above, the questions and challenges associated

with diversity and professionalism evolve into a constant companion for remu-

neration setting organs.

Looking to legal practice, the precise arrangement of a remuneration package

reflecting the new law is still unclear53

. Especially the desired relation of vari-

able-to-fix remuneration and the practical implementation of incentive struc-

tures reflecting a long-term sustainable development pose questions and leave

market practitioners with legal uncertainty54

.

Another interesting change admitted through VorstAG is the obligation of the

supervisory board to cut remuneration of the management board in case of fi-

nancial distress55

. The goal of this instrument is to diminish public critics on

high management salary while a company is struggling but fails to account for

the potentially increased workload during such a time. In the same direction

goes the newly established instrument of say on pay. Shareholders now have

the right according to § 120,4 SCA to vote upon the remuneration concept for

49 Hohaus/Weber (2009): p. 1516.

50 Before VorstAG the law referred only to the individual tasks of a management board mem-

ber. 51

Shearman & Sterling (2009): without page numbers. 52

Hüffer (2008): p. 445-449. 53

Deilmann/Otte (2009): p. 265. 54

Shearman & Sterling (2009): without page numbers; Financial Times Deutschland Online

(03.03.2004): without page numbers. 55

Hüffer (2010): p. 449-450; Diller (2009):p. 1007-1009.


13

the management board. However, due to the non-binding nature, literature al-

ready refers to it as soft law.

3.1.2 Supervisory Board

The remuneration of the supervisory board is regulated in § 113 SCA. It is in-

teresting to learn that the supervisory board “may be paid remuneration for

their duties” (§ 113,1 SCA). In other words, there is no legal obligation to pay

the supervisory board members56

; however, the expenses related to the tasks

must be reimbursed57

. § 113, 2 SCA provides two alternative ways to fix the

remuneration. It can either be stipulated in the articles of association or by ap-

proval of the annual general meeting. As a de facto cap on remuneration serves

sentence three of article § 113 SCA. According this, the remuneration must be

reasonable in relation to the duties and the situation of the company. The term

reasonable is defined by Hüffer (2010) and Wellkamp (2004) using criteria

such as qualification of the person, size of the company and comparison with a

peer group58

. A variable element of remuneration is allowed according to §

113, 3 SCA. It is commonly accepted that § 113,3 SCA includes all elements

listed in § 87,1 SCA as instruments of variable pay59

. However, Hüffer60

(2010) points out that a remuneration function of a supervisory board member

should not lead to a decreasing compensation in situation of financial or stra-

tegic restructuring as this is probably the most demanding time for supervisory

board members61

. The same argument is true for young start-up companies62

.

The discussion focusing on the aspect of variable elements of remuneration

will be extended later on.

56 Lutter (1995): p. 287 et. seq.

57 Hüffer (2010): p. 608.

58 Hüffer (2010): p. 607-608; Wellkamp (2001): p. 492-496.

59 Hüffer (2010): p. 610.

60 Hüffer (2010): p. 610.

61 Fallgatter (2003): p. 705; Habersack (2004): p. 721; opposing view in Lutter (1995): p. 304,

footnote 65. 62

Mäger (1999): p. 1389; opposing view in Paeffgen (2004): p. 1173.


14

3.2 German Corporate Governance Code

The current version of the German Code of Corporate Governance is dated 18.

June 2009. After its first publication in February 2002, the code has seen a

number of changes and adoptions. Despite the fact that the GCGC is no statuto-

ry law, it is still closely connected to it. Article 161 SCA serves as a link be-

tween the Stock Corporation Act and the GCGC. The code operates a comply-

or-explain modus and thus creates pressure on non-conforming companies to

disclose why they have not followed a specific recommendation.

Remuneration policy is at the heart of the CGCG63

. This not only relates to the

absolute amount but also to the underlying incentive structure and overall con-

cept of remuneration64

. The code calls on both board to fully disclose their re-

muneration and structure in the annual report65

. A major intend of the GCGC is

to enhance transparency when it comes to remuneration. Moreover, the share-

holders need to be informed during the annual general meeting on the main

concept and implemented structure for remuneration. Therefore, the recently

implemented say on pay66

can be regarded as spill-over of the GCGC.

This sub-section starts with the GCGC regulation on management board remu-

neration and continues its way to the section of the supervisory board remune-

ration.

3.2.1 Management Board

Section four of the GCGC deals with the management board. A considerable

part of this section focuses on the remuneration and the structure of it. In re-

gard to substance and interpretation of this section, the gap between statutory

law and GCGC was much more substantial before the implementation of the

VorstAG67

.

63 See section 4.2.5. of the GCGC.

64 Ringleb/Kremer/Lutter/v. Werder (2010): p. 207 et. seq.

65 The Vorstandsvergütungsoffenlegungsgesetz (VorstOG) (10.08.2005) followed the GCGC

idea and stipulated transparency requirements into statutory law. 66

§ 120,1 SCA relating to the remuneration of the management board. 67

Dauner-Lieb/von Preen/ Simon (2010): p. 378.


15

In section 4.2.2 the GCGC restates the new regulation implemented in article §

87 SCA in regard to reasonable payment. The horizontal and vertical perspec-

tives for determining the appropriateness of compensation are explicitly men-

tioned. It is interesting to note that both the GCGC68

and article § 87 SCA (new

version) now stipulate that any remuneration scheme must foster the sustaina-

ble creation of value. Remuneration shall consist of a fixed and a variable ele-

ment with a prior agreed cap level69

.

Looking to variable remuneration elements, the GCGC explains in detail which

criteria are important to achieve an appropriate incentive structure supporting

sustainable growth. According to section 4.2.3 of the GCGC, a multi-year pe-

riod of performance assessment with challenging targets is necessary to set up

a reasonable remuneration scheme. Furthermore, the variable compensation

element shall take into account both positive and negative performance and

prevent managers from taking up unreasonable risks70

.

3.2.2 Supervisory Board

Section five of the German Corporate Governance Code is dedicated to the su-

pervisory board. In its subsection 5.4, the code addresses the composition and

compensation of supervisory board members. Besides several re-statements of

the law, the code contains a number of additional requirements and sugges-

tions. In regard to remuneration, the individual compensation shall reflect the

membership in board committees, the position of the chairman and deputy

chairman of the overall board and the committees. This approach finds positive

feedback in literature as it reflects the work load and responsibility of each in-

dividual member more adequately71

. An attendance fee for every meeting is a

widespread element in this regard. Thus, it can be concluded that remuneration

can vary within the supervisory board. Not all members must earn the same

depending on the involvement as chairman or committee member etc. This dif-

ferentiation is called functional differentiation.

68 GCGC mentions it in the foreword and later on in section 4.2.3.



71 Ringleb/Kremer/Lutter/v. Werder (2010): p. 283-284; 287-289.


16

In addition to the function-based remuneration element, the code prescribes

that supervisory board members shall receive performance-based compensation

that is linked to the development, financial success of the company. This per-

formance-based element shall also consist of a long-term element. All board

members are assessed on the same criteria. Most companies base the long-term

and short–term compensation on financial data like Earnings-before-Interest-

and Taxes (EBIT), Cash Flow or Earnings-before-Interest-Taxes-Depreciation-

and-Amortization (EBITDA). Traditionally, the performance component was

linked to the dividend payment. The reasoning for such a performance-based

component and possible counter argument will be discussed later in the thesis

(Section 4.3).

As discussed before, there is no legal obligation according to § 113 SCA to pay

the members of the supervisory board a remuneration. But as pointed out in li-

terature, companies may do so to attract qualified candidates72

. Comparing the

structure and elements of the remuneration of the management board and the

supervisory board, it becomes clear that both boards have comparable elements

in regard to the fixed and performance-based component. The functional-based

component could be compared to the specific function of a board member. Al-

so on board level, the chairman and the deputy chairman have a higher income

compared to the other board members; same holds true for the argument that

certain functions tend to be compensated higher, e.g. finance vs. human re-

source73

. In this regard, the idea of a committee-based remuneration of the su-

pervisory board will be addressed in chapter five. In chapter five, the potential

impact of the VorstAG and its conceptual ideas on supervisory board remune-

ration will be discussed.

72 Bischof (2006): p. 2628.

73 Kienbaum (2008) provides empirical evidence for national and functional differentiation in

remuneration.


17

Comparing recommendations and suggestions pertaining to management board

and supervisory board remuneration, also the GCGC devotes more attention to

the management board remuneration – like the Stock Corporation Act. Super-

visory board remuneration is not a neglected aspect of corporate governance in

the GCGC but still ranks second74

.

As a key take-away from comparing management and supervisory board, it is

striking that the remuneration of both organs is much closer than their actual

duties and tasks in the corporation. From a corporate governance perspective,

this finding provokes the question of conflict of interest and the risk of quality.

Therefore, it is necessary to address the question of a modern supervisory

board remuneration that takes into account corporate governance concerns and

the increased demand for transparency and independence.

74 E.g. Ringleb/Kremer/Lutter/v. Werder (2010) spend 90 pages on management board remune-

ration but only 22 pages on supervisory board remuneration.

Remuneration of Supervisory Board Members

in Germany

18

4 Remuneration of Supervisory Board Members

in Germany

This part of the thesis provides an overview of the current status of supervisory

board remuneration in the 30 companies listed in the Deutsche Aktienindex

(DAX-30). As no own empirical research is performed, facts and figures are

taken from recent studies and publications. Major sources are studies from

Towers Perrin, Deloitte, PriceWaterhouseCoopers and Handelsblatt75

. Whereas

data are taken from mentioned sources, graphics, tables and analytics are based

on own work to ensure a comprehensive and compact presentation. Care has

been taken to use and combine only data that is correct and comparable.

In a first step, the absolute remuneration is presented to introduce the current

payment situation in the DAX-30; secondly, the focus shifts to the composition

of the supervisory board compensation and, thirdly, the crucial topic of varia-

ble pay will be discussed in more detail. Within this, both the underlying ratio-

nale for a variable payment and implications of the landmark case MobilCom

(2004)76

will be analyzed.

4.1 Absolute Remuneration

The following bar chart shows clustered data on the remuneration of the chair-

men of the supervisory board of all DAX-30 companies. The clustered data do

not only provide an insight and a good overview on current remuneration levels

but make also clear that remuneration varies considerably across the compa-

nies. In the following chart, four groups exist ranging from earning a minimum

of EUR 300,000 (left) to a group earning below EUR 100,000 (right). The

numbers above the bar indicate the amount of DAX companies in this group.

75 All studies are listed in the bibliography.

76 BGH II ZR 316/02 (16.02.2004): p.122-129.


in Germany

19

Graphic 1: Total Remuneration of the Chairman of the Supervisory Board DAX 2009

Five chairmen earned more than EUR 300,000 p.a. in 2009 for their work in

the supervisory board. However, presented data show also the down side risk:

six chairmen earned less than EUR 100,000 in 2009. It seems astonishing that

such strong differences can be observed. Surprisingly, the bottom-feeders are

not sitting on the easiest boards: Infineon only paid EUR 50,000 to the chair-

man and EUR 25,000 to ordinary members; Deutsche Lufthansa paid EUR

75,000 to the chairman and EUR 37,500 to ordinary members77

. For Deutsche

Lufthansa, this meant a decrease of 69% compared to 200878

. Both Infineon

and Deutsche Lufthansa faced serious challenges in their respective industry

and, thus, the supervisory boards were strongly involved. As a consequence,

Deutsche Lufthansa increased the fixed base remuneration to EUR 50,000 at

their annual meeting in April 2010 underlining that a more stable remuneration

is desirable in volatile markets79

.

Within the minimum EUR 300,000 group, E.ON AG, Henkel KGaA and Sie-

mens SE are the leaders. All three chairmen were able to increase their salary

in 2009: E.ON plus 10%, Henkel plus 29% and Siemens plus 33%. In total,

E.ON AG spent more than EUR 4.9m on supervisory board remuneration. It

ranks number one in terms of total expenditure. On average, a chairman of a

German supervisory board earned EUR 226,000 in 2009.

77 Data taken from annual report 2009.

78 Calculated on data provided in the annual report 2009.

79 Deutsche Lufthansa (2010): Invitation to the annual meeting: p. 10-11.


in Germany

20

This is comparably stable taking into account that in 2006, the average com-

pensation amounted to EUR 232.882 (2007: EUR 257,963)80

.

The GCGC recommends81

paying the chairman, the deputy chairman and

committee members’ more than normal members of the supervisory board. All

DAX-30 companies follow this recommendation in principle but implement

different solutions as it is shown in the graphic below.

Graphic 2: Functional Differentiation in DAX Supervisory Boards 2009

The graphic describes how many companies use what remuneration relation as

to chairman vs. deputy chairman vs. normal member. Again, no leading role

model can be identified. To highlight an outlier, Deutsche Bank AG uses the

factor 4x for the supervisory board chairman and would even suggest a higher

degree of differentiation82

. In general, multipliers constitute an instrument of

functional differentiation in regard to remuneration.

Having seen and discussed the German numbers, it might be worth looking

across different borders. A reasonable hypothesis would be that equal work

should be paid equally. The following table contains the remuneration of the

chairman of the supervisory board or its equivalent in different jurisdictions.

80 Tower Perrin (2007): p. 7.


82 Deutsche Bank AG Annual Report 2009: p. 125-127; additional information from interview-

ing Dr. Henning; supportive Lutter (1995): p. 308-309.


in Germany

21

Country Function Peer Group Remuneration (€)

Non-executive

Verwaltungsratspräsident

Swiss Stock Market

Switzerland 763,000

Non-executive

Chairman

FTSE 100

United Kingdom 466,000

Non-executive

Chairman

Fortune 500

USA 413,000

Chairman Supervisory

Board

DAX 30

Germany 226,000

Graphic 3: Remuneration of a Non-executive Chairman83

At a first glance, it directly appears that remuneration differs from country to

country. A Swiss non-executive chairman earns EUR 763,000, UK and USA

show comparable numbers around EUR 430,000, but Germany ranks 4th

with

only EUR 226,000. This is roughly the remuneration of SAP AG’s supervisory

board chairman Hasso Plattner in 200984

.

However, it needs to be highlighted that the comparison across different juris-

dictions suffers from the different task and responsibilities assigned to the

board. Therefore, variance in remuneration can partially be explained by this

inherent conceptual difference. Despite this effect, experts point out that so far

there is no European or international payment level for supervisory board

members85

. The market for such person is still rather local and country specif-

ic86

. The next pie chart illustrates this phenomenon.

83 Towers Perrin (2009): p. 11.

84 SAP AG Annual Report (2009): p. 50-52.

85 Towers Perrin (2009): p. 11

86 Heidrick&Struggles (2009): p. 13.


in Germany

22

Graphic 4: Origin of Supervisory Board Members DAX 200987

Whereas only 23% of the supervisory board members are non-Germans, share-

holders from outside Germany account for roughly 53% of share capital88

. On

the management level, diversity has already increased and recent initiatives

push forward the idea of diversity as part of enhanced professionalism in the

supervisory board as well.

4.2 Composition of Remuneration

As indicated in chapter three, a modern remuneration system calls for combina-

tion of different remuneration elements. Currently, 27 out of 3089

DAX com-

panies offer their supervisory board members a twofold compensation package

consisting of a fixed and a variable element. This is in line with the recommen-

dations of the GCGC and article § 113 SCA which opens the door for variable

payment to supervisory board members. All DAX-30 companies have a fixed

remuneration component for all supervisory board members90

. This fact should

not be taken for granted: Deloitte highlights in its 200991

supervisory board

survey on leading Austrian companies that 6% of the supervisory board mem-

bers do not receive such a component92

.



89 PriceWaterhouseCoopers (2010): without page numbers (online report).


91 Deloitte (2009): p. 4.

92 Deutsches Aktieninstitut (2003): In fact, also in Germany, only 53% of listed companies of-

fer a fixed remuneration to supervisory board members (p. 37).


in Germany

23

Recalling the two main functions of the supervisory board (control and advi-

sory) the relation of fix-to-variable, ergo the structure of the payment function,

moves into the focus of attention.

The following bar chart illustrates the structure of remuneration of supervisory

board members in 200793

.

Graphic 5: Fixed Compensation as Part of Total Remuneration DAX 200794

The chart proves again that remuneration highly varies across companies. At

six companies, fixed compensation accounts for less than 25% of total

remuneration. At 17 companies, fixed remuneration acounts for 25% to 70%,

and four companies either have no variable pay element or it is less than 30%

of total remuneration. From a top down perspective, it seems as if no best

practice model exists. Several structures can be observed at the same time.

Although no best practice model can be identified, guidelines for remuneration

are published by compensation consultancies and private-public institutions. In

2003, the Deutsche Aktieninstitut together with Towers Perrin published a

guideline for supervisory board remuneration95

. By publishing a guideline, the

authors intended to increase practical certainty and present a role model for

remuneration practice. In essence, the guideline proposes a remuneration of

93 Data collected from Towers Perrin (2008).

94 Deutsche Telekom AG had a performance-based element in place but no payment resulted

from it in 2008. The same applies to the supervisory board of Infineon AG where the board

agreed to waive the right. Commerzbank AG is not included in the analysis due to missing

data. 95

Deutsches Aktien Institut / Towers Perrin (2003).


in Germany

24

50% fixed and 50% variable – where variable has an equal share of short-term

and long-term based remuneration96

. This view is shared by a number of

consultanties and supported by academics as well97

. However, this target

structure is hardly met by companies over time. The next chart illustrates the

actual importance of variable pay as percentage of total remuneration for

supervisory board members.

Graphic 6: Variable Pay as Part of Total Remuneration

Remembering that leading independent experts and public institutions propose

a remuneration of 50% fixed and 50% variable, one has to discover that most

payment functions do not meet this equilibrium over time. Due to the dynamics

of markets and constant changes in business, it is obvious that this structure

will not be met every year. However, it should constitute a target structure for

balanced remuneration within the planning period98

. How difficult it is to deal

with such a target structure can be analyzed looking to BWM AG: in 2007, to-

tal remuneration for all board members amounted to EUR 2,8m of which EUR

2,7m (95%) were variable; in 2008 and 2009, no payments resulted from the

variable element due to the automotive crisis, thus, the supervisory board only

earned in total EUR 100,00099

. Other companies show comparable payment re-

96 Deutsches Aktieninstitut / Towers Perrin (2003): p. 30

97 Vetter (2008): p. 3-5.

98 Towers Perrin (09.10.2008): without page numbers (online report).

99 BMW Annual report (2008): p. 143; BMW Annual Report (2009): p. 156.


in Germany

25

sults. The question how to adjust on an ongoing basis target levels for variable

pay is still not successfully answered.

Having learned that variable pay is an important factor for supervisory board

remuneration the next logic step is to determine the key input factors and

measures for this element. Referring to § 113,3 SCA supervisory board mem-

bers can be awarded with a share of the annual profit. Therefore, it can be con-

cluded that in general all performance-based remuneration elements can be

based on accounting measures reflecting the economic success of the company.

An analogous application of § 87 SCA is affirmed in literature100

.

Traditionally, most companies had a variable payment component linked to the

annual dividend. Overtime, more and more companies replaced this measure

by more sophisticated key rations101

. In 2005, 20 companies in the DAX had

tied the remuneration to the dividend, in 2008 however, only 12 index mem-

bers stick to this method102

. The last company to replace dividend-based remu-

neration was K+S AG switching to a return-on-capital oriented payment func-

tion103

. The transition from the rather simple dividend model to more complex

accounting measures must be seen in the context that the GCGC now contains

a recommendation to include a long-term measure into the payment func-

tion104

. Measures and accounting ratios reflecting long-term goals are inter alia

earnings-per-share (EPS), Economic-value-added (EVA), return-on-capital-

employed (ROCE) or return-on-investment (ROI)105

.

4.3 Is there a Rationale for Variable Pay for Supervisory Board Mem-

bers?

Keeping in mind that a supervisory board has two main functions, it needs to

be discussed if and how incentives should be structured to enhance perfor-

mance and make members acting in the best interest of the firm. Looking at the

100 Mäger (1999): p. 1389; Hüffer (2008): p.573

101 Potential conflicts of interest and the reasoning will be discussed in the following part.

102 Data collected from PriceWaterhouseCoopers, TowersPerrin and Handelsblatt (08.04.2010).

103 K+S AG Annual Report 2008: p. 33.


105 Deutsches Aktieninstitut / Towers Perrin (2003): p. 31, 32.


in Germany

26

findings in the DAX panel, variable pay seems to be an appropriate, commonly

accepted instrument to achieve this goal for the strong majority of companies.

In a first step, the economic rationale for variable pay shall be explained based

on a principal-agent approach.

In a subsequent step, the landmark case for variable payment is presented and

its implications will be discussed to understand the legal framework for possi-

ble adoptions and changes.

4.3.1 The Economic Rationale for Variable Payment

Analyzing and discussing possibilities and challenges of variable payment for

supervisory board members relies on one strong economic assumption: the in-

strument of variable pay creates added-value in regard to overcoming or mini-

mizing the principal-agent problem. According to Ross (1973), “a principal-

agent relationship arises between at least two parties, in which one (the agent)

acts on behalf or as a representative of the other (the principal) to perform ser-

vices which involve delegating decision-making authority”106

. In a US one-tier

system, the principal-agent model fits intuitively well with the shareholders as

principals and the board of directors as agents. The classical problem of separa-

tion of ownership and control occurs107

. Looking to Germany, the question

arises how to transform this approach to a two-tier system with namely three

players: the shareholders, the supervisory board and the management board.

Furthermore, the question occurs who should be incentivized by whom to do

what. As explained in chapter three, both boards have a totally different scope

of work108

. In a two tier system, the supervisory board is the instrument of the

shareholders to constantly control the management – but not to run the compa-

ny. Therefore, the supervisory board needs incentives to fulfill its control tasks

and to fix appropriate contracting in regard to the management board109

. Look-

ing to the conflicts of interest between the shareholders (principal) and the su-

pervisory board (agent) especially the question of performance, time preference

and personal utility should be highlighted. Diverging preferences in itself do

106 Ross (1973): p. 134.

107 Fama, E. / Jensen, M. (1983): p. 303.

108 Perry (1995): Perry coins the term “secondary agency problem” for the principal-agent rela-

tion between outside directors and the shareholders in a one-tier system. 109

Pirchegger/Schöndube (2006): without page numbers.


in Germany

27

not constitute a governance problem but the information asymmetry leads to

incomplete information and the subsequent risk of hidden action. Due to this

situation agency costs arise to control or incentive the agent110

. Whereas aca-

demic literature widely agrees on the necessity of a cost-benefit analysis before

implementing a performance-based incentive program111

, the implications and

solutions drawn from such an analysis are heterogeneous. Lüpkes (2008)112

finds sufficient arguments and facts that variable pay is a useful instrument to

incentivize supervisory board members113

. US studies collected supporting

empirical evidence as well114

. In a game-theoretical approach, Pircheg-

ger/Schöndube (2006) found no positive effect of variable pay on the perfor-

mance of a supervisory board. Fixed remuneration was sufficient in all scena-

rios115

. According to the authors, this finding proves that the classical conflict

of interest between owners and managers is structurally very different. There-

fore, performance-based incentives do not create added value116

. The general

critic on game-theoretical approaches applies also here: the model world is dif-

ferent from the real world. Therefore, results must be interpreted with caution.

Additional critic arises from the assumption of all studies that share price per-

formance is an appropriate measure of firm success. More criticism on perfor-

mance-based remuneration is presented in section 5.1.

Taking all arguments into consideration, an economic rationale for variable pay

for supervisory board member does exist based on a principal-agent analysis.

However, the question to be answered in practice is how to interrelate and

coordinate the incentive structures of the three principal-agent constellation in

a German stock corporation. Moreover, the challenge arises to define a mea-

surable output factor for control. The answer to this question must be in com-

110 Jensen/Meckling (1976): p. 306.

111 Arnold (2007): p.129-131.

112 Lüpkes (2008): p. 109 et seq.

113 Lüpkes (2008), p. 115 et seq.: But Lüpke denies the argumentation for a supervisory board

under co-determination. 114

Cordeiro et. al. (2005): p. 5. 115

Pirchegger/Schöndube (2006): We find that incentive contracts in our setting perform fairly

poor in motivating supervisory board members. In fact control efforts can be motivated only

in some scenarios. To provide appropriate contracting incentives a purely fixed compensa-

tion is sufficient in all settings. In some settings it is even necessary to prevent induced

moral hazard (without page numbers). 116

Pirchegger/Schöndube (2006): without page numbers.


in Germany

28

pliance with the economic and legal rationale and reflect the different tasks and

responsibilities of the company organs.

4.3.2 After the MobilCom Ruling: What Incentives are still allowed?

Legal uncertainty was and is a major element of the discussion on the remune-

ration of supervisory board members in Germany117

. Not only the total amount

is debated but also the structure, and closely linked to this, the individual con-

cept of performance-based remuneration118

. All performance-based remunera-

tion concepts rely on accounting data, share price development or dividend

payments119

.

In 2004, the Bundesgerichtshof (BGH) had to decide on the lawfulness of a

stock option-based remuneration element for the supervisory board of the Mo-

bilCom AG120

. In its obiter dictum the court held that the incentive structures

of the supervisory board and the management board must not run parallel121

.

This would severely dilute the control function and weaken the perception of

the supervisory board as an independent organ of the company122

. In its reason-

ing the court explicitly referred to the legal concept of both organs within the

stock corporation act and the GCGC. Furthermore, the court underlined that the

share price development is not a reasonable and appropriate measure of the

success of a company123

. The court ruling had a strong, immediate impact on

corporate remuneration policy and initiated a broad discussion in literature

about the scope and interpretation of the obiter dictum in regard to any perfor-

mance-based remuneration124

.

117 Vetter (2008): p. 1.

118 Mäger (1999): p. 1390 et. seq.

119 Bischof (2006): p. 2629; Remark: Total-Shareholder-Return is deemed as sub-category.

120 BGH II ZR 316/02 (16.02.2004): Remark: technical details of purchase and distribution of

stocks and options discussed in the court ruling are not in the focus of this thesis. 121

In the MobilCom case both the management board had an option-based remuneration ele-

ment. 122

BGH II ZR 316/02 (16.02.2004): p. 122-124. 123

BGH II ZR 316/02 (16.02.2004): p. 122-124. 124

Habersack (2004): p. 733 ; DaimerChrysler and Schering withdrew their plans for option-

based remuneration shortly before the annual general meetings in 2004. Daimler still has no

performance-based remuneration element in place.


in Germany

29

In a wide interpretation of the obiter dictum, hardly any accounting data can be

accounted as a legal base for remuneration anymore. Given the high correlation

of all profit-and-loss and balance sheet figures a situation of parallel incentive

structures between management and supervisory board can hardly be avoided

as most management contracts contain a variable pay based on figures like

EBIT or EBITDA125

. Furthermore, accounting data like EBIT or EBITDA in-

corporate a misleading size-effect. Growth takes priority over profitability.

This problem is alleviated when using rations like Return-on-Capital-

Employed or Return-on-Investment which measures relative numbers. None-

theless, both the problem of high correlation remains unsolved and the ques-

tions whether corporate performance is a good indicator for good monitoring.

The increasing debate on corporate governance structures will lead to more

criticism on those performance-based remuneration schemes126

. The dividend-

based performance payment is a good example for this: less and less companies

make use of this model due to the criticism on possible self-adjustment of the

dividend by the supervisory board127

.

The possible inverse relation of workload and corporate success constitutes

another important argument against performance-based remuneration. Critics

point out that workload sees a peak value in cases of financial distress or any

other situation of corporate failure. Thus, a payment function must account for

this and should not lead to a low payout in such a situation128

. Good and expe-

rienced managers will not be attracted by such a payment function to sit on the

supervisory board129

. And this may lead to a higher fluctuation and additional

instability130

.

125 Vetter (2008): p. 3.

126 Bischof (2006): p. 2629.

127 See section 4.2 of this thesis.

128 Opposing view in, Lutter (1995): p. 304.

129 Fallgatter (2003): 703-708; Habersack (2004): 721-733.

130 See as example Infineon in 2009 and 2010.


in Germany

30

Despite fundamental criticism, academic literature and remuneration consul-

tants still promote performance-based remuneration elements. Especially Vetter

(2008) strongly refers to conceptual guidance provided in SCA § 113,3 and §

86, 2 as argument for performance-based remuneration including share price

related mechanisms131

. In his opinion, the BGH ruling should not find con-

sent132

. Lutter (1995) expands on Vetter’s view and states that supervisory

board member shall only receive a marginal fix salary but large performance-

based payments133

.

Surprisingly, the weaknesses and flaws of the concepts are partly acknowl-

edged, but due to a missing alternative to incentivize supervisory board mem-

bers, most academics stick to these remuneration concepts134

. This attitude

finds harsh criticism also aiming at the legislator who fails to change laws and

regulations accordingly135

. And in fact, countries like the Netherlands136

or the

United Kingdom137

restrict non-executive director remuneration to fixed pay-

ments. The German legislator has neither reacted to that nor provides a ratio-

nale for not changing the law. In its corporate governance study 2009, Heidrick

& Struggles compiles data on the importance of fixed remuneration for super-

visory board members across Europe.

131 Vetter (2008): p. 5.

132 Vetter (2004): p. 238: „(…) kann der BGH jedoch keine Gefolgschaft finden, sollte er gene-

rell jegliche Form der erfolgsorientierten und am Aktienkurs ausgerichteten Vergütung der

Mitglieder des Aufsichtsrates in Frage stellen wollen“. 133

Lutter (1995): p. 304. 134

Arnold (2007): p. 134-136. 135

Hopt (2003): p. 221: „But it is hardly realistic to expect non-executive directors to check the

management and its pay if they themselves may benefit from the same source. Again, the

German Corporate Governance Code is not up to this when recommending that the mem-

bers of the supervisory board should also be paid according to the success of their compa-

ny”. 136

Dutch Corporate Governance Code: Section III.7: The remuneration of a supervisory board

member is not dependent on the results of the company. 137

UK Combined Code: Section B.1.3: Remuneration for non-executive directors should not

include share options.


in Germany

31

Graphic 7: Fixed Remuneration as share of Total Remuneration in 2009138

In Germany, 57% of total compensation is fixed. This implies a high impor-

tance of variable payments for supervisory board members. Only in France the

share of variable pay is even larger. In jurisdictions like Sweden, Denmark or

even the UK, variable payments contribute marginal amounts to the total re-

muneration.

Therefore, a movement of convergence could be a possible development in the

future in Germany. It seems unlikely that the German legislator will ignore

these facts in the long-run.

138 Heidrick&Struggles (2009): p. 17, figure 27.

Worth a try? Applying Management Board Remuneration Practice to Supervisory Board Members

32

5 Worth a try? Applying Management Board Remunera-

tion Practice to Supervisory Board Members

As depicted in the preceding chapters the discussion on remuneration for su-

pervisory board members is driven by legal uncertainty and has currently come

to a stand-still situation. In the meantime, the new German legislation on man-

agement remuneration, ongoing corporate failures and the EU-wide trend of

harmonization call for new concepts, ideas and perspectives when it comes to

supervisory board remuneration in Germany.

The most current legal impulse for remuneration of management board mem-

bers is the VorstAG. Therefore, this section aims at running a check-up which

conceptual ideas introduced by the VorstAG should be applied to supervisory

board members. It is beyond the intension of this thesis to develop a complete

new model for compensation. However, the goal is to contribute ideas to the

process of adaptations reflecting impulses from new legislation and academic

literature and thus to modernize supervisory board remuneration practice. Fur-

thermore, when using new remuneration elements and ideas, it is analyzed who

is attracted by such elements.

The chapter is organized as follows. It starts with the aspect of appropriateness

including a view on qualifications-based remuneration, on implications of di-

versity and on workload. The chapter continues with a discussion on perfor-

mance-based remuneration elements reflecting control and advisory tasks. At

first, the question of how to measure control is addressed, before looking at al-

ternative understandings of performance-based remuneration.

5.1 Appropriateness of Remuneration

Appropriateness is the key term when it comes to justifying the remuneration

of executive directors. Even though this criterion is also stipulated in SCA §

113 pertaining to supervisory board members, the VorstAG adds some aspects

to define appropriateness for management board remuneration: besides the

amount and structure of the remuneration, a horizontal and vertical check must

be performed to ensure appropriateness. Moreover, major impact factors in-


33

fluencing and determining the appropriateness are diversity requirements, the

need for professional expertise, the specific workload and associated liability

risks. This section addresses these aspects and tries to develop solution for an

application on supervisory board remuneration.

5.1.1 Qualification-based remuneration

Professionalism is a key driver for the development of the supervisory board

into an effective control and advisory corporate organ139

. Talking to members

of supervisory boards and board consultants, they find it increasingly difficult

to select candidates with specific industry knowledge and experience that are

available and willing to work on a supervisory board140

. Thus, the selection

process is strongly driven by qualification141

characteristics. In its draft version,

the GCGC, section 5.4.1, (June 2010) endorses this qualification-based ap-

proach and calls for more transparency in regard to topics and targets the su-

pervisory board focuses on. The next logic step would be to pay supervisory

board members according to their qualification. So far, the legislator has only

introduced qualification requirements142

but does not allow for a qualification-

based remuneration143

. On a management board level, this is common prac-

tice144

, but on the supervisory board, only a functional differentiation is al-

lowed145

.

Looking to current supervisory board compositions, admittedly, the increase of

industry knowledge and experience is a gradual process which consumes time

and requires change management capacities. A financial expert is currently the

only required person with a specified qualification background146

. Whereas

most companies do not disclose their screening method for supervisory board

139 Lutter (2008): p. 777-779.

140 This view is confirmed by Heidrick&Struggles (2009): p. 7.

141 Qualification is used as sum-up term for industry knowledge, experience and formal educa-

tion. 142

E.g. financial expert. 143

Kropff/Semler (2004): p. 1090. 144

Hüffer (2010): p. 445-446: e.g. most management board members have different salaries

based on their field of work, for example finance vs. human resources. 145

Functional refers to a multiplier for the chairman, committee members etc. 146

However, legal disputes arise who is a financial expert, e.g. LG Munich 5 HK 15312/09

(05.11.2009).


34

members, QIAGEN N.V.147

presents on its homepage a qualification set-card

stating requirements. Taking this as an example, the idea of a qualification-

based remuneration element shall be explained. At QIAGEN N.V., the supervi-

sory board is composed so that each member meets the required criteria and

fulfils at least one recommended criterion. In total, all recommended criteria

must be fulfilled by at least one member. The same approach is taken in the

draft version (June 2010) of GCGC section 5.4.1. However, this requirement

modus de facto softens minimum qualification-requirements but may is a result

of stakeholder compromise.

Required Recommended

Integrity US/ Asia background

Ethics Entrepreneur

Health Corporate management multinational

English Currently full time employed

Experience Public reputation

Independence

Academic/ industrial research

Diagnostics markets

Capital markets

Financial management

M&A, business development

Commercial operations

Public management

Regulatory/ operations

Graphic 8: QIAGEN N.V. Skill Set Card

As stated by the company, the recommended criteria also signal to the stake-

holders the scope of the supervisory board and thus enhance transparency. Cur-

rently, no DAX-company publishes such a set-card but it can be expected that

after the adoption of the draft version GCGC (June 2010) companies will fol-

low the QIAGEN example. The importance of specific knowledge and abilities

when selecting a member of the supervisory board was confirmed by a court

147 QIAGEN N.V is a Venlo/The Netherlands based bio-technology company listed in the

TecDax with a market cap of ca. EUR 3.8bn.


35

ruling148

of the Oberlandesgericht Hamburg (OLG). The court underlined that

companies should look and attract supervisory board members which fit best to

their industry and corporate-specific profile.

The implemented cooling-off mechanism of the VorstAG will lead to a dry out

situation in the supervisory board in regard to industry and corporate know-

ledge. Thus, it becomes even more important to attract industry expert who re-

ally understand the business model and the market149

. This is especially true in

regard to functions such as human resource, marketing and sales operations.

Most supervisory boards do not mirror the business profile of the company150

.

This line of arguments supports the idea of a remuneration scheme that is – at

least partly –based on industry knowledge and experience. Again, the process

of professionalism calls for a remuneration element reflecting qualification.

The current view that qualification-based remuneration is not covered by law

seems outdated. In theoretical terms, a qualification-based remuneration ele-

ment constitutes a shift from an output-oriented (performance) approach to an

input-oriented (e.g. qualification) approach for compensation. Opponents151

ar-

gue that a price-tag for qualification will not work and point to the appointment

procedure for supervisory board members at a general meeting: a nomination

plus an individual remuneration recommendation would be necessary for a vot-

ing and create a too high hurdle. Moreover, a market value for supervisory

board members cannot be calculated as no market exists, opponents argue.

Currently the GCGC and the Recommendation of the European Commission152

take a rather diffident position on qualification but the more demanding word-

ing in the June draft of the GCGC is a step into the right direction to support

the idea of a qualification-based remuneration element153

. The final ruling on

the interpretation standard of individual qualification norms such as the finan-

148 OLG Hamburg 11 U 48/06 (17.01.2007): p. 814-817.

149 Lutter (2008): p. 778.

150 Heidrick&Struggles (2009): p. 13.

151 Kropff/Semler (2004): p. 1090.

152 EU Commission (2005): Point 11.1.

153 General support for minimum qualification requirements in: Jungmann (2006): p. 433-472.


36

cial expert will clarify requirements. But still, the board as a group is in the

main focus of the law, and not yet every individual member. This should be the

next step.

5.1.2 Work Load and Responsibilities

Besides qualification, another potential aspect for reasonable payment differen-

tiation is the level of workload and closely associated to this the level of re-

sponsibility. Arguably, the chairman, the vice-chairman and the committee-

heads invest a considerable amount of time in their work as a member of the

supervisory board compared to ordinary members.

As described in chapter 4.1, the majority of DAX-companies use a multiplier

set of 2:1,5:1 to differentiate between the chairman, the vice chairman and a

normal members of the supervisory board. Nine companies take a multiplier set

of 3:2:1 and thus increase the spread. Deutsche Bank operates a 4:1,5:1 modus.

Some critical voices have already started to cast doubt on the appropriateness

of this approach154

. But meanwhile, the number of supporters for a bigger

spread grows and they advocate a multiplier set of up to 10:2:1 but this would

not be possible due to the risk of negative publicity.

Looking to committee work, the picture is different, and even more diverse. All

companies have implemented extra payment for committee work; but the mod-

us varies considerably. Most companies pay the same amount of extra remune-

ration for every committee membership plus an extra for the committee chair-

man. Speaking to practitioners, two key messages are important: firstly, com-

mittee work gains relevance; secondly, workload of committees varies consi-

derably. Reports on committee work support this view and underline the neces-

sity to adequately value the input and time of committee members155

. With 4.8

committees on average German companies rank number one in Europe156

.

Therefore, a functional remuneration differentiation based on committee mem-

bership offers an opportunity to adjust compensation. Such an adjustment

154 Plagemann (2008): p. 95-97.

155 Heidrick&Struggles (2009): p.9; PWC (2007): p. 11-15 and p. 50-53.

156 Heidrick&Struggles (2009): p.9, figure 12.


37

should be committee specific reflecting the workload and frequency of meet-

ings and not a one-size-fits-all solution. The legislator is open to this idea but

most corporations make no use of this opportunity157

.

Currently, most companies have an audit committee, a nomination committee,

a remuneration committee158

and a strategy committee. Screening literature and

press articles, authors agree that the audit committee is the most time consum-

ing and demanding committee159

. The legislator seems to agree and requires a

financial expert160

in this committee. Less intense work is associated with the

nomination committee which meets in most cases only once or twice a year161

.

Therefore, a multiplier set could be an appropriate way for compensation ad-

justment that reflects committee specific involvement. In 2009, 17 DAX-

companies offered an attendance fee which partly compensates for higher

workload in specific committees but leaves aside the work done outside of

official meetings162

.

As a summary, most companies have a standardized functional differentiation

in place. This implemented and accepted approach leaves headroom for further

improvement in regard to modernize and individualize supervisory board re-

muneration. However, the risk of negative publicity when increasing the mul-

tipliers and extra payments for committee work should not be underestimated.

Especially the remuneration of the chairman is in the public focus. Therefore, a

remuneration element linked to committee membership must be promoted in

the context of workload and responsibilities to gain acceptance.

157 Introduction of KonTraG, BT-Drucksache 13/9712, p 16: (…) Die Differenzierung soll

auch der Praxis einen Anstoß geben, einer dem tatsächlichen Einsatz entsprechende heraus-

gehobene Vergütung (…) der Mitglieder arbeitsintensiver Ausschüsse offener zu begegnen. 158

GCGC now requires the whole supervisory board to work on remuneration. 159

Warncke (2005): p. 237 et seq. 160

§ 319a HGB since 25. May 2009 (BilMoG) 161

Ringleb/Kremer/Lutter/ v. Werder (2010): p. 306-307. 162

Towers Perrin (2009): p. 7; attendance fees differ from EUR 200 to EUR 2,000 per meeting.


38

5.1.3 Diversity Requirements

Although the diversity discussion seems to focus on a gender quota for wom-

en163

, diversity has more perspectives to be analyzed164

. In its draft version

June 2010, the German Corporate Governance Code recommends in section

5.4.1 to form a supervisory board that reflects the specific situation of the com-

pany and the level of international operations165

. In addition, international

shareholders are still underrepresented in German supervisory boards as shown

in section 4.1.

Recalling that German supervisory board members tend to enjoy less compen-

sation than peers in the United Kingdom or Switzerland it becomes obvious

that remuneration is a crucial aspect for attracting international experts. How-

ever, the VorstAG only allows remuneration packages that are in line with ver-

tical and horizontal comparison that focus on Germany. Albeit VorstAG de

lege lata applies only to management board remuneration, the check-

mechanism for appropriate remuneration is likely to be transferred to supervi-

sory board remuneration, too.

Even before the legislator introduced a Germany-focused appropriateness

check, Mäger (1999) argued that the market where the company operates

should determine the compensation and not the place of the corporate seat. A

modern legislator should be aware of the international environment of corpora-

tions166

. Thus, the legislator needs to address the question of competitive pay-

ment and enable corporations to attract the most suitable experts for the super-

visory board. Therefore, any limitation or restriction to take into consideration

international remuneration levels should be avoided.

163 FAZ (28.05.2010): p.13.

164 Labbe/Tomicic/Reger (2010): p. 38-41; survey results see Appendix 2.

165 See section 5.4.1 of the GCGC (draft), June 2010.

166 Hüffer (1997): p. 215, 244-245.


39

5.2 Performance-based Remuneration Elements

Recalling the implications arising out of the principal-agent view, an economic

rationale for a performance-based remuneration element cannot be denied. At

the same time, the shortcoming and challenges of such an approach are crucial

points. When setting up a remuneration scheme for the supervisory board, in-

centives for monitoring the management not for running the company need to

be defined. However, nearly all remuneration schemes contain performance-

based elements which reflect economic success or share price development.

But is economic success or a high share price a proof for successful control and

advisory? And does such a modus adequately reflect the workload in a situa-

tion of corporate distress?

Infineon is a prominent example for this fallacy. During 2009, 10 meetings of

the supervisory board were held167

. In the absence of a casual proof, the high

fluctuation on the board might be explained by the high work load and the low

compensation. The performance-based compensation element was waived up-

front by the supervisory board members as it was out-of-the-money anyway. A

re-negotiation of remuneration was no option given the opposing shareholder

constellation. This example illustrates that performance-based remuneration

elements should be designed differently for supervisory board members than

for management board members.

The first part of this section addresses the question how to measure a success-

ful supervisory board. In a second step, the potential impact on diversity re-

quirements and policy on performance indicators is discussed. In the third part,

the idea of a committee-specific remuneration element will be presented.

5.2.1 How to measure successful Control and Advisory?

In February 2004, the BGH court ruling on MobilCom168

stated that share price

performance is not a reliable indicator for the success of a company. In addi-

tion, the court precluded parallel incentive structures and measurements for

167 Infineon AG Annual Report 2009: p. 51-54.

168 BGH II ZR 316/02 (16.02.2004): p.122-123.


40

management and supervisory board. In essence, performance-based remunera-

tion elements for the supervisory board must be linked to ratios or figures of

corporate performance that are uncorrelated to those figures used to evaluate

the performance of the management board. At the same time, the work of the

supervisory board must have an impact on the ratios or figures, but should not

be at the discretion of the supervisory board (e.g. dividend payment).

The legal framework tries to protect the control function of the supervisory

board and to foster independence. Despite the plain intention of the BGH, lite-

rature and corporate practice still promote and use correlated measurements for

supervisory and management board remuneration169

.

Promoters of performance-based remuneration elements implicitly assume that

supervisory board members need an incentive to carefully perform their tasks

in order to act in compliance with shareholder’s interest. However, a number of

academics see inherent incentives for supervisory board member to act careful-

ly. Gilson170

finds evidence for non-pecuniary and independent incentives in

the constant fear of a board member to lose its position due to underperfor-

mance of the business. Fama/Jensen (1963)171

develop this into a reputation

argument for each individual board member: each board member will be com-

mitted to fulfill its responsibilities because they want to serve on the board of a

successful company. Being a member of the board of a successful company has

positive signaling power to other companies so that the current board members

will be more attractive for other companies to hire. Thus, it can be concluded

that market forces create a rationale for supervisory board members to act in

the best interest of the shareholders. This rationale is independent from the

payment function of the individual board member. Therefore, it can be called

into questions if a performance-based pay element for supervisory board mem-

bers adds value. In addition, neither for the German market nor the US market,

it is yet not shown that companies with performance-based remuneration for

169 Habersack (2004): p. 732-734; Vetter (2004): p. 236.

170 Gilson (1990): p.355, 356.

171 Fama/Jensen (1983): p. 301, 313.


41

supervisory board members / non-executive directors are outperforming those

companies without such a remuneration element172

.

Both Thüsing173

(2003) and Arnold174

(2007) support this view and point to the

stewardship principle. A crowding-out of stewards with intrinsic motivation is

the result of a remuneration system that focuses on performance-based pay175

.

Another argument against performance-based remuneration elements is asso-

ciated to the actual function of the supervisory board. Arnold176

(2007) argues

that any performance-based remuneration could induce the supervisory board

to interfere with the daily business of the management board. This would con-

tradict law. Arnold (2007) even proposes to preclude any performance-based

remuneration linked to accounting data or share price development because the

supervisory board is by law a control instance and not a management organ177

.

Arnold’s view finds empirical evidence in a recent study: Probst/Theisen178

(2010) show in a panel research that the majority of supervisory board mem-

bers defines itself as a control instance with a limited impact on actual business

decision. Given this information, it seems even less appropriate to link supervi-

sory board remuneration to the financial success of the firm. The 50/50 split

between fix and variable compensation promoted by board consultants and

academics179

finds no supportive reasoning in practice.

Another potential solution to evaluate the performance of the supervisory board

can be seen in an institutionalized board review. This is endorsed by the GCGC

in section 5.6 “Self Evaluation”. On a yearly basis, consultants conduct inter-

views to recap and assess the work and projects of individual members of the

supervisory board180

. It includes mutual feedback of all supervisory board and

172 For the German market: Hartmann (2004): p. 104; for the USA: Gerety/Hoi/Robin (2001):

p. 59; Hempel/Fay (1994): p.111. 173

Thüsing (2003): p. 457-473. 174

Arnold (2007): p. 258. 175

Plagemann (2008): Listing articles and aspects supporting this view (p. 53-54). 176

Arnold (2007): p. 155-162. 177

This is the strictest interpretation of the BGH MobilCom ruling in literature. 178

Probst/Theisen (2010): p. 66-68. 179

Lutter (1995): p. 304; Ringleb/Kremer/Lutter/ v. Werder (2010): p. 307-308. 180

V. Werder/ Talaulicar (2009): Nearly all companies listed in the Prime Standard perform

board reviews on a regual basis; table 5, p. 693.


42

management board members181

. However, most supervisory board members

doubt the prima vista good intension of a board review182

. Board reviews are

seen as an instrument to put pressure on individual members and to make board

members leave if there are not in line with the chairman’s opinion183

. The re-

cent board review undertaken at Continental AG184

is a striking example. Cur-

rently, not all board members support the strategy of the majority owner and

may block upcoming restructuring projects in regard to the transformation of

Schaeffler KG and Continental AG into one company. Given this mistrust and

the risk of arbitrary results, board reviews are not a useful tool to determine the

performance of a supervisory board member. Consequently, it cannot be used

to determine the remuneration of the individual board member.

Summarizing this section, it must be concluded that the current practice of per-

formance-based remuneration for supervisory board members is not helpful to

increase the quality of performance. Both theoretical arguments of intrinsic

motivation and the challenge that no convincing measurement modus or audit

ratio is currently at hand to evaluate the performance of the supervisory board

call for new ideas and approaches. Von Werder/Wiedemann (2002) state that it

will never be possible to prove the performance of a supervisory board as no

output factor of monitoring and controlling is measurable185

. This is an inherent

problem of an intangible service. As a consequence, modern performance-

based remuneration should address separately the control and advisory func-

tion, and should take into consideration other, non-classical performance indi-

cators reflecting diversity and professionalism.

5.2.2 Can Diversity increase the universe of performance indicators?

Discussing possible impacts of the VorstAG and the June 2010 draft of the

GCGC the promoted idea of diversity must be taken into consideration. So far

performance-based remuneration is linked to financial indicators, accounting

181 For a complete description of an evaluation process see Ringleb/Kremer/Lutter/v. Werder

(2010): p. 321-323. 182

For critical voice in the press see footnotes 165 and 166. 183

Die Welt Online (12.04.2009) discussing RWE board review in 2009. 184

Financial Times Deutschland (28.04.2010): p.4. 185

Supportive Arnold (2007): p. 134-135.


43

data or share price developments. No other dimension is measured. Averaged

data are labeled sustainable but not changing the challenge of measuring long-

term success and improvements186

. Dauner-Lieb/v.Preen/Simon187

(2010) an-

ticipate a broader approach towards performance indicators and look forward

to new ideas reflecting the VorstAG. It is worth looking which potential spill-

over effects on the remuneration of the supervisory board can be concluded.

Looking to recent developments in executive compensation, TNT N.V.188

in-

troduced a remuneration policy in 2010 that tries to comprise financial perfor-

mance indicators, client-orientated measurements and environmental care data.

Starting in 2008, TNT worked two years on its new remuneration policy that

should reflect modern market practice, the demand for transparency and mod-

ern corporate governance practice. Besides a fixed remuneration element, TNT

N.V. executives receive a performance-based remuneration element with four

dimensions. The table below illustrates the composition of the variable pay

element.

% Indicator Perspective

50% Finance: Earnings-before-Interest-and-Taxes, Net Cash Flow, Re-

turn-on-Invested-Capital, Total-Shareholder-Return

15% Employees: Development Goals, Training

15% Environment: CO2 efficiency, Health Care and Safety

20% Customers: Satisfaction, Service Quality

Graphic 9: Composition of Performance-based Remuneration at TNT N.V.189

From a management perspective, the TNT N.V. approach is grounded on a bal-

ance scorecard model. Taking a multi-dimensional view on performance is an

adequate answer to a multi-facetted understanding of corporate performance.

186 Dauner-Lieb/v. Preen/Simon (2010): p. 380.

187 Dauner-Lieb/v. Preen/Simon (2010): Nach der Ausrichtung der Vorstandsvergütung auf das

Ziel einer nachhaltigen Unternehmenspolitik ist eine Erweriterung und Differenzierung der

Erfolgsparameter zu beobachten. Finanzkennzahlen bilden regelmäßig nur noch einen Aus-

schnitt aus dem Straß der zur Steuerung des Vorstandshandelns definierten Parameter und

Ziele (p. 379). 188

TNT N.V. is a Dutch logistic company with a market share of EUR 7.7 bn. 189

TNT N.V. Remuneration policy for 2010 (download source see bibliography).


44

Sustainability evolves from a label to a performance indicator190

. The man-

agement is now under pressure to respect all dimensions. So far, no DAX-30

company has implemented such an idea neither for the management nor super-

visory board.

The acceptance of such a remuneration concept for supervisory board members

will strongly depend on the individual interpretation of the function of the

board. On the one hand, supporters of an active advisory and monitoring

mandate will agree with this concept. On the other hand, supporters of a pas-

sive control function will argue that the supervisory board has no direct influ-

ence on the performance indicators.

Moreover, the measurement of such intangible indicators would face critic.

Therefore, the supervisory board should not be measured according to these in-

dicators.

Despite all criticism and challenges, the supervisory board cannot deny respon-

sibility for environmental care or human resource development. Thus, a multi-

dimensional remuneration concept poses a solution to overcome purely finan-

cial-oriented performance models. The TNT N.V. idea allows to combine all

kinds of indicators and to individualize it for the specific situation of the com-

pany. The idea fits into the development of corporate governance guidelines

and legal regulation. In addition, the idea would enjoy public attention and help

to re-foster trust in the corporate world.

5.2.3 Provide Committee-adjusted Remuneration Elements a Solution?

As pointed out in previous chapters, ideas for new remuneration concepts need

to find acceptance in the corporate, legal and public community. Currently, a

scope shift can be perceived turning the plain supervisory organ into a monitor-

ing and active steering board challenging the management on an ongoing basis.

However, looking to the legal concept of a German two-tier system, the super-

visory board is a control organ and is not allowed to run the company. The

190 Dauner-Lieb/v. Preen/Simon (2010) speak of Leistungs- und Nachhaltigkeitsparameter and

provide further examples (p. 380).


45

emerging dualism of functions brings a very important question on the table:

how to implement a performance-based remuneration element that fits both to

the passive control and active advisory function.

A solution that might provide a solution to the dualism challenge is a remune-

ration element linked to the committee work of each individual supervisory

board member191

. The rationale for such an approach is based on two grounds.

Firstly, given the fact that the supervisory board has two functions, a complete-

ly unified remuneration concept for all supervisory board members that is not

linked to the actual task seems inappropriate. Secondly, committee work be-

comes increasingly important in supervisory boards. The professionalism de-

bate will further increase this trend. The specialization of work within the

committee reflects the broad work scope of the supervisory board ranging from

strategy advisory, investment decisions, to nomination and remuneration or the

audit committee. Therefore, a link between the actual committee work and the

remuneration element is a logic result of this development. To summarize the

concept, each member of the supervisory board receives a base, fixed remune-

ration plus a compensation element linked to his committee work which is

fixed or variable.

Taking both arguments into consideration, the idea of committee specific re-

muneration elements is well-grounded. Moreover, it reflects the VorstAG prin-

ciple of more individualized remuneration based on actual tasks and perfor-

mance. Looking to practical implication of this idea, it seems reasonable to

evaluate the suitability of remuneration elements on a case-by-case approach.

In this regard, the theoretical concept of principal-agent conflict provides a use-

ful tool: only if the work of a committee is linked to the financial success of the

corporation, a performance-based remuneration element shall be in place. The

agent needs an incentive to diligently perform his tasks and maximize value.

However, if the task is independent from the financial success of the corpora-

tion, a fixed compensation element should be added. The reduction of the con-

flict of interest lies in the heart of this split idea. Furthermore, this approach is

191 Bischof (2006) mentions this idea in the context of quality improvements (p. 2632); suppor-

tive Plagemann (2008): p. 98-99.


46

in line with the MobilCom ruling in which the BGH clarified that the ade-

quateness of a remuneration element must be evaluated according to its impact

on the quality of work192

.

Starting with the control function, the audit committee is a prominent exam-

ple193

. The goal of this committee is to cooperate with the financial auditors

and to review accounting practice and principles. The goal and work of this

committee is independent from the financial success of the corporation. In such

a case, a remuneration linked to financial success is misleading194

. It would dis-

tort and weaken the independence and create an incentive for supervisory

board members to manipulate accounting data. Thus, also from a principal-

agent perspective, an incentive creates no added-value.

Turning to committees with high impact on financial performance, the strategy

and investment committee are good examples. The work and goal of these

committees are strongly linked to the financial success195

. Here, the agent is

engaged in decisions that create influence the value of the corporation. There-

fore, a performance-based remuneration element linked to the corporate value

would create a reasonable incentive for the supervisory board members. The

same holds true for the nomination committee: which other factor might have a

bigger impact on future performance than new management?196

The idea of a committee-specific remuneration element seems conclusive and

reasonable. Both principal-agent arguments and practical implications support

this idea. However, without dealing in detail with legal restrictions, challenges

arise due to the legal nature of the supervisory board acting under joint and

several liability when making decisions. Moreover, the mutual membership of

supervisory board members in different committees needs to be addressed. Dif-

ferentiation of remuneration is restricted to functional reasons.

192 Ringleb/Kremer/Lutter/v. Werder (2010) propose that all committee work could be remune-

ration with additional variable pay elements (exemption: mediation committee) (p.306-307). 193

Plagemann (2008) supports the idea of a committee-specific remuneration element (p. 246). 194

Theisen (1999): p.1665. 195

Kropff/Semler (2004): p. 831. 196

Opposing view in: Plagemann (2008): p. 98-99.


47

In a positive interpretation, committee-specific remuneration elements should

be regarded as a type of functional differentiation197

which is allowed by law.

A two-dimensional definition of functional differentiation could open the door

for this idea: not only the position in the committee or board counts but also the

committee itself is a decisive factor. In regard to deviating remuneration among

committees, Bischof (2006) suggests that the mathematical security equivalent

of the unsecure performance-based remuneration must match the secure fix

remuneration in order to gain acceptance in the legal world198

.

197 Functional differentiation of remuneration refers to the extra payments for committee mem-

bers, chair persons and vice-chair person. 198

Bischof (2006): p. 2632.

Summary

48

6 Summary

This part of the thesis delivers a consolidated view on the main insights and ar-

guments presented herein. Based on these findings, a concluding recommenda-

tion is developed to modernize supervisory board remuneration. The chapter

concludes with an outlook addressing crucial aspects for further discussion.

Expanding on the summary and recommendation function, this section starts

with an overview on changes to supervisory board remuneration during the an-

nual general meeting season 2010 to introduce most current trends and senti-

ments.

6.1 Current Trends in the Annual General Meeting Season 2010

As mentioned before, the debate on supervisory board remuneration faces cur-

rently a stand-still; no new ideas are introduced. However, analyzing the

2010’s annual general meeting season of the DAX-30 companies, small steps

and adjustments can be perceived correcting erroneous remuneration struc-

tures199

. Eight200

out of 30 companies had the issue of supervisory board remu-

neration on the agenda. Six companies raised the fixed remuneration element

pointing to the increased responsibilities and liability risks of the supervisory

board. In the Siemens case, a minority shareholder organization201

criticized

and tried to replace the current remuneration scheme and proposed a fix-only

remuneration model. However, the motion failed.

The most interesting changes happened at Deutsche Telekom AG and Salzgit-

ter AG. Deutsche Telekom initiated a rigorous change process202

starting in

2010 to adopt supervisory board remuneration to current trends. Again, fixed

remuneration is increased, performance-based elements are reduced and

199 Salzgitter AG and Deutsche Telekom AG admitted that their remuneration structure was de-

fective. 200

In alphabetical order: Deutsche Lufthansa AG, Deutsche Post AG, Deutsche Telekom AG,

MAN SE, Metro AG, Salzgitter AG, SAP AG and Siemens SE. 201

Verein von Belegschaftsaktionären in der Siemens AG (sic!) e.V. 202

Deutsche Telekom AG invitation to annual meeting 2010: Namentlich sollen die feste jähr-

liche Vergütung bis 2011 stufenweise angehoben, die erfolgsorientierte jährliche Vergütung

gestrichen, die Bemessung der jährlichen Erfolgsvergütung mit langfristiger Anreizwirkung

geändert, das Sitzungsgeld angehoben, die Begrenzung von Multiplikatoren für Aus-

schussmitgliedschaften und –vorsitze aufgehoben, und der Multiplikator für die Mitglied-

schaft im Prüfungsausschuss erhöht werden (p. 19-20).

Summary

49

capped and extra pay for committee work gains importance. Turning to Salzgit-

ter AG203

, the company stated in the invitation to the annual meeting that steel

industry crisis revealed the erroneous remuneration structure of the supervisory

board. It proved to be too volatile, too high in good business years (no cap in

place) and too low in difficult times. Performance-based remuneration ele-

ments dominated the remuneration. It its new version, the fixed remuneration is

higher, and performance-based elements are capped with a focus on long-term

average numbers. In addition, committee work enjoys higher fixed remunera-

tion, too. Both examples show that companies are aware of the importance of

supervisory board remuneration and especially the structure of the remunera-

tion.

In 2010, DAX-30 companies increased base salary, implemented simpler struc-

tures and made efforts to increase transparency of supervisory board remunera-

tion. Whereas long-term orientation gains importance, the concept of diversity

has yet not found its way into remuneration schemes.

The key learning from 2010’s annual general season is that companies are will-

ing to work on the remuneration scheme for supervisory board members. But

there are not willing to take legal and reputational risks associated to new ideas

or concepts. Companies seem to fear a first mover disadvantage. Therefore,

companies operate within their known legal setting.

6.2 Main Findings: Key Points, Ideas and Arguments

The thesis starts with a comparative view on the task, responsibilities and the

legal setting for remuneration of the supervisory and management board within

the German two-tier system for stock corporations. It reveals that the actual

remuneration concept is much closer than the function of the two boards stipu-

lated by law. The contrast of legal obligations and functions does not mirror in

remuneration practice but parallelism of incentives finds its restrictions in the

BGH Mobilcom case. In most cases, both boards have a fixed base salary and a

performance-based remuneration element tied to financial accounting data. The

203 Salzgitter AG (2010): p. 3-4.

Summary

50

BGH ruling precludes parallel incentive structures for both boards and share-

price oriented remuneration elements for the supervisory board. The BGH’s in-

tension is to protect the control function of the supervisory board and to foster

independence vis-à-vis the management board when judging on management

decisions. In this context, the debate on the development of the supervisory

board into an active advisory body with a minor focus on control will influence

remuneration policy.

Looking to current remuneration practice among DAX-30 companies, great

disparities and differences appear. This leads to the conclusion that no role

model exists. Performance-based remuneration elements are common practice

and represent a dominant share of total remuneration for the majority of super-

visory boards. This finding provokes criticism as the high share of perfor-

mance-based remuneration jeopardizes the independence needed to perform

control functions. Moreover, a lack of performance indicators exists reflecting

a multi-dimensional understanding of corporate success. Misleadingly, finan-

cial performance is the only dimension of corporate success.

The subsequent principal-agent analysis illustrates the motivation for perfor-

mance incentives in general. Despite the theoretical economic rationale, major

challenges arise when implementing incentives for supervisory board mem-

bers. Drawing a line between control and advisory, and defining measurable

output criteria pose a major hurdle and weaken the rationale for performance

incentives for supervisory board members in general. In addition, a crowding

out of stewards with intrinsic motivation occurs.

In its main part, chapter five, implications of the VorstAG are discussed and

solutions presented how supervisory board remuneration could adopt to follow

the new conceptual ideas of the new legislation. The thesis takes a critical view

on traditional performance-based remuneration elements. It proposes a change

towards more diverse indicators of success and input-oriented remuneration

schemes (e.g. qualification-based). The critic on traditional performance-based

remuneration is trinomial: no output factor of control is measurable, an inhe-

Summary

51

rent conflict of interest with management board remuneration incentives and

the squeeze out of intrinsic motivation for supervisory board members.

Given the debate on professionalism, a qualification-based remuneration ele-

ment could attract skillful candidates and thus increase the quality of the super-

visory board. Qualification is a major selection factor during nomination but

has so far no impact on the remuneration itself. As a second alternative, a ba-

lanced scorecard model for remuneration is presented. It reflects a multi-

facetted definition of corporate success and brings the idea of diversity to reali-

ty. The unique advantages of this approach lies in the potential acceptance

among stakeholders. However, measurement and target setting remain chal-

lenges. As a third alternative, a committee-specific remuneration element is

discussed. The inherent idea is to adjust the performance indicator according to

the actual task of a supervisory board member. This approach solves the strug-

gle of contradicting control and advisory functions and allows for attuned re-

muneration elements. A committee-specific principal-agent analysis supports

this idea and illustrates why variable pay does not always work as incentive.

Bearing in mind the role of the supervisory board, the new ideas and concep-

tual changes in remuneration environment, the initial question “Should Super-

visory Board Remuneration follow Management Board Remuneration Prac-

tice?” can finally be addressed. As depicted, both boards have different roles

within the legal setting of the stock corporation. Therefore, it is necessary to

adjust remuneration concepts to each role. Remuneration must be seen as a tool

to foster independence and to incentivize good performance of the supervisory

board. The inherent challenge is to balance the accord of independent control

and entrepreneurial advice in the remuneration scheme. Standardized perfor-

mance-based remuneration elements should be reduced for supervisory board

members for the benefit of either qualification-based remuneration or commit-

tee-specific remuneration elements. By doing so, long-term orientation and

sustainable value creation emerges from a soft label to hard reality. Promoted

by the VorstAG, the ideas of diversity and more individualized payments

should find its way into supervisory board remuneration, too. As a supportive

instrument, corporations should be obliged to provide a specific rationale for

the election of each supervisory board member. The UK Combined Code in

Summary

52

Article A.7.2 stipulates this approach to increase transparency and foster accep-

tance for the organ.

Implementing new remuneration concepts that reflect the VorstAG ideas will

lead to a higher remuneration spread among supervisory board members. Po-

tentially, this may jeopardize or weaken the atmosphere of cooperation and

trust in the organ. One cannot ignore this potential risk but has to address it

right from the beginning. Facing a need for re-thinking, the current legal setting

and understanding of the supervisory board acting and being liable as one or-

gan challenges ideas and concepts that lead to a bigger remuneration spread

among board members. It is important to transparently justify the remuneration

of each supervisory board member to gain acceptance for higher spreads

among all stakeholders. Again, applying the idea of diversity is key as it leads

to a multi-facetted understanding of corporate success covering all stakeholder

groups.

As a summary, the VorstAG is a good and reasonable impulse for the process

of modernizing the regulation on remuneration pertaining to supervisory board

members. However, supervisory board remuneration should not follow man-

agement board remuneration practice in every detail. It is with the legislator to

actually modernize the key paragraph § 113 SCA in order to re-establish legal

certainty and to allow for new remuneration concepts. In a first step of moder-

nization, § 113,1 SCA sentence 3 should be changed to “remuneration should

be appropriate to the task and performance of the supervisory board mem-

ber“204

. This phrasing would mirror the VorstAG wording in § 87, 1 SCA and

open the door for more individualized remuneration in the supervisory board.

Moreover, the outdated wording of article § 113,3 SCA should be renewed to

allow for a diversity of performance indicators. The one-dimensional perspec-

tive of article § 113,3 SCA does not reflect the needs of modern remuneration

schemes. The legislator must realize the strategic value of remuneration within

the improvement process of the supervisory board.

204 In German: „(…) in einem angemessen Verhältnis zu den Aufgaben und Leistungen des

Aufsichtsratsmitgliedes stehen“.

Summary

53

6.3 Crucial Aspects for Future Discussions

Based on recent developments and tendencies of the legislator an attempt shall

be made to identify vital aspects for the future discussion on supervisory board

remuneration.

Having learned that the perception of the role of the supervisory board signifi-

cantly differs among academics, corporate executives and stakeholders, the

question occurs in which direction the organ will de facto develop205

. In early

1999, Mäger206

concluded that a conversion of the remuneration systems for

both boards is just a matter of time but failed to anticipate the MobilCom rul-

ing. Dauner-Lieb/v. Preen/Simon (2010) now pose a similar question in regard

to the impact of the VorstAG: is this law a first step towards a single board sys-

tem? The discussion on the understanding of the role of the supervisory board

in the German two-tier system will be a major driver for the development of

the remuneration practice.

In the meantime, foreign legal forms gain acceptance in Germany and chal-

lenge traditional German corporate governance structures and understandings.

Corporate legal forms such as Societas Europaea (SE)207

or public limited

company (plc)208

are available as an alternative to corporation when operating

in Germany.

This pluralism of legal forms provokes the questions which corporate gover-

nance guidelines these corporations should adhere to when it comes to supervi-

sory board remuneration209

. Especially the importance of performance-based

remuneration varies considerably across Europe as shown in section 4.3.2 and

graphic number six. Therefore, the impact and extend of harmonization must

be assessed and critically evaluated when modernizing the legal setting for su-

pervisory board remuneration in Germany.

205 Dauner-Lieb/v. Preen/Simon (2010): p. 377-378.

206 Mäger (1999): p. 1394.

207 Within the DAX-30, inter alia Allianz, BASF and MAN operate as SE; for an introduction

to the SE monistic board system see Bachmann (2008). 208

Air Berlin operates as a plc with its major stock listing in Germany. 209

Or non-executive director remuneration depending on the board structure.

Summary

54

The legal setting for remuneration policy becomes increasingly strict, especial-

ly for management board members. The selective perception of corporate fail-

ure and scandals supports this development. Both corporate law and gover-

nance codes limit the flexibility of corporation and block the implementation of

new remuneration concepts. The result is a stand-still within a dynamic corpo-

rate environment. Keeping this in mind, it is questionable if tighter regulation

helps to overcome the challenge of adequate and modern supervisory board

remuneration. It is an open question if it would be better to allow corporations

to implement new ideas and monitor the reactions of markets and stakeholders

afterwards. However, given the public mistrust and the restrictive political en-

vironment, no public acceptance can currently be expected.

Appendix and Bibliography

VI

Appendix

A1 One-tier, Two-tier and Mixed Systems of Board Structures

Graphic 10: Overview on Board Structures

Taken from Heidrick&Struggles (2009): p. 5, figure 5.

A2 Understanding Diversity and its Aspects in Corporations

Graphic 11: Survey on Diversity

Taken from Labbe/Tomicic/Reger (2010): p. 39.


VII

A3 List of Interview Partners

Adidas AG Anett Lehninger, Legal Department

Adidas AG Dr. Stefan Jentzsch, Member of the Supervisory Board

Daimler AG Thomas Schulz, Corporate Secretary

Deutsche Bank AG Dr. Peter Henning, Head of Supervisory Board Office

Labbe & Cie.

(Board Consultants)

Prof. Dr. Marcus Labbe, Managing Director

PriceWaterhouseCoopers Nicole M. Schneider, Consultant

TowersWatson

(before merger: Towers Perrin)

Joachim Kayser, Director Executive Compensation

Germany


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Master’s Thesis – Cheating

I understand that the master’s thesis of the Bucerius/WHU Master in Law and Business

Program (“thesis”) must be my own work and that, for this reason, all forms of 'cheating' are

forbidden.

'Cheating' is an attempt to benefit myself (or another person), by deceit or fraud. This

includes (but is not limited to) deliberately representing the work of another person/source

without proper citation (plagiarism).

In particular, I understand that plagiarism is not acceptable and will not be tolerated. A

significant amount of unacknowledged copying shall be deemed as constituting evidence of

plagiarism. In this case, I will not be awarded credits for my thesis.

Where text (or a passage thereof) is taken from another author/source, I must indicate

unequivocally the source of the material in question. In any case, my essay must be in my

own words. This means the following:

(a) Even if I only indirectly make use the work of another person, all sources must be

fully referenced. Proper citation is essential. I must not present the ideas of another

person as my own work. Instead, it is my task to show that I have understood the

ideas/concepts of other persons so that I can engage in critical evaluation.

(b) In those cases in which I fully reproduce the text of another person from another

source (such as a book, an article, a case or the internet) in order to emphasize a point

(direct quotation), I will correctly cite the passage. I must indicate the relevant

passage with quotation marks ("...") and I must provide the full citation to the source

and site consulted. Generally, the use of the “copy&paste” function in order to

reproduce text/material from the internet into my thesis is deemed to constitute

evidence of plagiarism, unless quotation marks are used and the citation is complete.

I fully understand these rules and will adhere to them when working on and/or submitting

my thesis. A breach of these rules could lead to a failing grade in the Bucerius/WHU

Master in Law and Business Program.

Date/Name: ____________________________

Signature: ____________________________

Initials

Initials

Initials

Affirmation I,

Name Stephan Meißner

Matriculation number 2009 4 003 affirm that I completed the Master’s Thesis with the title Should Supervisory Board Remuneration follow Management Board Remuneration Practice? without unauthorized help and that I did not use any other materials other than those cited in my master’s thesis. Any information that I quote or on which I base any passages is clearly and corrected cited. Further, I have neither submitted this or a similar work to fulfill the requirements for another course or program nor published this or a similar work. _Hamburg, 07. July 2010_______ ___________________________________ Date Signature

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