Full Disclosure

Salary Spotlight

Heinold DPA
Schleswig-Holstein's finance minister wants more transparency at banks.
  • Why it matters

    Why it matters

    The issue of bankers pay and bonuses has become a global issue. In Germany, smaller, regional banks are wading into the fray by disclosing the salaries of their senior managers. But not everyone is happy.

  • Facts

    Facts

    • North Rhine-Westphalia began the disclosure efforts in 2009 and Schleswig-Holstein wants to follow suit.
    • Advocates for the banks argue the disclosure rules run afoul of data protection regulations.
    • Bosses of the major savings banks in North Rhine-Westphalia are earning up to €750,000 ($930,038) a year.
  • Audio

    Audio

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Germany’s 416 regional savings banks, known as Sparkassen, will gladly provide information about loans and their social commitments. But most of the banks are tight-lipped when it comes to how much they pay their top executives. However, an increasing number of banks are being pressed by the German federal states to disclose their salaries.

The latest move is in the northern coastal state of Schleswig-Holstein. The coalition there consisting of the Social Democratic Party of Germany (SPD), the Green party, and the South-Schleswig Voters’ Association, which represents the state’s Danish-speaking minority, has reached an agreement on a draft “salary disclosure” law and the state parliamentarians are currently considering the matter and working out the details.

“Just as the salaries of ministers, deputy ministers, and members of parliament are public, the income of the managerial staff of state-owned corporations must also be no secret,” said Monika Heinold, the state finance minister and a member of the Green Party, in justifying the initiative.

The proposed legislation, which is deliberately based on the 2009 initiative by the state of North Rhine-Westphalia, is aimed at making the salaries of the executive boards of savings banks as well as those of the executives at the state’s development bank, university clinics and other public companies transparent.

Not everyone thinks it is a good idea. “We have difficulties with the deliberations over a so-called transparency law in Schleswig-Holstein,” explained a spokesperson of the German Savings Banks Association (DSGV), “In our view, the plans are contrary to data protection regulations.”

 

The banks assets

 

This objection doesn’t have much traction with the state government. The infringement of the right to personal data protection of individual members of governing boards is not denied but is justified due to the purpose of the law, it claims. The interests of the individual are second to those of the common good, particularly since making the salaries public is a matter of job-related data and not highly personal data, as it states in the explanatory memorandum of the proposed legislation.

In the future, the disclosed remunerations of the boards of the 13 savings banks situated in the state are also to be separated into fixed or non-performance-related and performance-related components. “I want to expressly say on behalf of the state government that this is not a matter of an envy-driven debate,” noted Ms. Heinold.

The trailblazer in this development is North Rhine-Westphalia. The federal state introduced transparency legislation five years ago. “Almost all of the nearly 100 savings banks are adhering to the transparency requirement or have agreed to it,” said a spokesperson of the North Rhine-Westphalia finance ministry. “We are putting massive pressure on the rest to do so.”

Some of the banks are fighting back against a disclosure with bizarre arguments. The executive board of an institute in the Sauerland region, for example, pronounced themselves against it because if their earnings were made public, they would have fear for the safety of their families.

“This is not a matter of an envy-driven debate.”

Monika Heinold, Finance Minister, Schleswig-Holstein

After all, the bosses of the major savings banks in North Rhine-Westphalia are earning up to €750,000 ($930,038) a year. That is quite considerable, even if it seems meager when compared with the earnings of the management team at Deutsche Bank. The co-chief executive officer, Anshu Jain, pocketed €10 million ($12.4 million) in 2013. And while the debate is raging in Europe over whether bonuses can only be twice the amount of the fixed wage, the share of performance-related bonuses at the savings banks is set at a maximum of 15 percent.

But not all of the institutes are complying with the transparency requirement. The Sparkasse Fröndenberg, the smallest savings bank in North Rhine-Westphalia, for example, writes in their latest business report from 2012: “The disclosure of the management’s total remuneration is omitted since the remuneration of an individual member of the management board can be determined with reasonable accuracy on the basis of this disclosure.” But that was precisely the purpose.

Neither state government can directly instruct compliance with the demands of transparency. It can only be done in a round-about manner. In the future, an “obligation of contributive effort” is to be in effect for those institutions, usually state-run, which own and run the savings banks. It becomes complicated when boards of directors, who are supposed to be making a “contributive effort” toward transparency, fight against individualizing their own earnings. A few received letters from the finance ministry in North Rhine-Westphalia this summer.

In the letters, which Handelsblatt has seen, the responsible bodies are instructed to only vote such persons onto the managing board, “Who, before having been chosen, irrevocably commit to the relevant individual disclosure for the whole duration of their time in office.” So it isn’t just the boards of the savings banks that are having trouble with the transparency.

 

Frank M. Drost is a Berlin-based correspondent for Handelsblatt and covers the banking sector. To contact the author: drost@handelsblatt.com.

 

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