Fat Cats

The Golden Parachute, German-Style

Cat that got the cream. Source DPA  Alliance/ Michael Goulding
Germany's fat cats can expect a very wealthy old age.
  • Why it matters

    Why it matters

    Major German corporations, including ailing companies like steelmaker ThyssenKrupp, are holding millions in pension reserves for their top executives, meaning less money for shareholders.

  • Facts


    • The major DAX and MDAX companies have a total of €4.8 billion in pension reserves for executives.
    • The average German executive makes 50 times as much as the average employee.
    • Pensions are usually based on the executive’s last compensation in a full-time position.
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Being an executive at a large corporation means pressure, long hours and little free time. But the job certainly has its perks: fantastic pay, flying business class, company apartments and cars, all of which help take the edge off the day.

Yet by far the most important perk employers provide their top executives lies deep in the small print of their contracts: the pension. It’s highly valued by executives and a costly affair for companies. The leading companies of Germany’s benchmark DAX and MDAX stock indices have €4.8 billion ($6.14 billion) on their books in pension obligations to active and retired senior executives.

This liability is also likely to increase, since pensions are usually based on an employee’s last salary, and those salaries have risen tremendously.

Ten years ago, chief executives of DAX companies earned an average of €1.4 million a year, whereas a number of chief executives today are collecting salaries in the €2 million range.

Top executives are in a league of their own when compared to ordinary employees. According to the German Federation of Trade Unions, or DGB, an active senior executive of a DAX-listed company makes 50 times what an ordinary employee earns, while the pensions that executives collect are about 250 times larger than even other white-collar employees.

In some cases, companies have to set aside reserves in the triple-digit millions of euros for executive pensions, including disability insurance and survivors’ benefits. Ironically, steelmaker ThyssenKrupp, which has reported losses for years, has €292 million in reserves for executive pensions. This is a relatively small amount compared with the group’s total pension obligations of €7.7 billion, but it is only earmarked for a few dozen managers.

“Company pensions are really just money for their heirs.”

Heinz Evers , Hans Böckler Foundation

Individual executives are especially costly.

For instance, Hartmut Retzlaff, chief executive of the pharmaceutical company Stada, is entitled to a company pension of €35.3 million. He has been chief executive for 21 years and his longevity is costing the company a pretty penny. Daimler chief executive Dieter Zetsche used to be at the top of the list of corporate pension millionaires. But now that Mr. Zetsche has passed the official 62-year-old retirement age for Daimler, the group can begin reducing his prospective entitlements on its balance sheet year after year. Four members of the executive board of Volkswagen are listed among the top ten contenders for the largest executive pensions.

The Wolfsburg-based automaker maintains a reserve of close to €4 billion to cover current and future employee pensions.



According to compensation expert Heinz Evers at the trade-union-linked Hans Böckler Foundation, these kinds of figures show that “pension plans have lost their original purpose.” That purpose was to guarantee managers a suitable standard of living in retirement, something which is now being called into question in light of the millions in compensation top executives are now earning while actively employed. “Company pensions translate into money for the heirs,” said Mr. Evers.

This is especially true as executives often receive company stock as performance-based compensation, which they can sell when they leave the company. Company pensions for senior executives are a typically German institution. They are not common in American companies, for example, where managers must earn their retirement, which, in light of generous stock options during their time of employment, isn’t exactly an enormous challenge.

An advance copy of Mr. Evers’ report on executive pensions in DAX and MDAX companies was made exclusively available to Handelsblatt.

The study found that only nine companies pay no retirement benefits at all, and in those cases it is up to the executives to save for their own retirements.

The only one of these companies listed on the DAX is cosmetics maker Beiersdorf. The Hamburg-based firm replaced the pension commitments that were once customary with a share of company value-oriented benefits that are based on long-term performance. Electric utility company RWE once paid its former chief executive, Jürgen Großmann, an annual salary of €2 million. In other words, Mr. Großmann saved for his own retirement.

Pensions are usually based on the recipient’s last full-time compensation, and former executives generally receive an average of 50 percent in retirement.

According to Mr. Evers, this means an average monthly pension of €55,000 for chief executives and €30,000 for ordinary executives in DAX companies, with somewhat lower amounts in smaller MDAX-listed firms, depending on their duration of service.

Pension millionairesV2-01

But executive jobs can be risky. Managers are increasingly replaced, with the average executive at a DAX-listed company lasting only six years.

“In contrast to the past, executive positions today are only temporary,” said governance expert and economics professor Rene Theisen. “The notion of executives quietly working away until they’re 65 and then going into retirement is outmoded.” For this reason, he added, it’s time that supervisory boards reassess total compensation for executives and, most of all, establish caps on compensation.

The performance-based system, that is, basing executive pensions on their last salary, is also becoming increasingly outmoded in Germany.

In the 1990s, rank-and-file employees and recipients of government pension benefits had to accept bearing a portion of their own pension risk. Now, high-earning executives are gradually being expected to do the same. MDAX companies, in particular, are having trouble adjusting.

Compared to company pensions for blue-collar and white-collar workers, former executives are very well taken care of.

According to a study by the Mercer executive search firm, DAX companies set aside about €80,000 in pension benefits per employee. For an executive board member, however, they place €20 million in reserve, or 250 times as much as for an ordinary employee. Even the 50-to-1 ratio between executive and average employee pay in the top German DAX-listed companies has triggered strong criticism about the inequity of corporate rewards in Germany.

According to the Evers study, executives enjoy many more perks than ordinary employees. Annual adjustments are common with executive pensions, whereas ordinary employees receive adjustments only once every three years. In many cases, executives are guaranteed at least a one percent increase per year, while those lower down the chain sometimes see no increase at all.

Munich Re, one of the world’s largest reinsurers, has put together a complete, all-inclusive package which ensures that if an executive’s contract is not renewed, he or she can retire at 50 with a normal pension. The only condition is that the executive must have been with the company for at least 10 years and that his or her contract has been extended at least once.

Dieter Fockenbrock is based in Berlin and is the chief companies and markets correspondent at Handelsblatt. Contact the author: fockenbrock@handelsblatt.com


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