Earnings of top managers with German DAX-listed companies were around 8 % lower in 2022 than in the previous year. As a result, the gap between CEO compensation and the pay of regular employees narrowed by a greater percentage than in hardly any previous year. In addition, the annual study by the Technical University of Munich (TUM) and DSW, an advocacy group for private investors, revealed: for the first time, more than half of the DAX companies are linking the compensation of top executives to environmental, social and governance (ESG) targets.
CEOs with the 40 companies listed on the DAX exchange earned an average of 3.3 million euros in 2022, or 8.4 % less than in 2021. By contrast, in 2021 the managers saw their compensation increase (by 24%) for the first time in four years.
Because of wage increases for regular employees, the pay gap within the DAX companies narrowed: In 2022 CEOs earned an average of 38 times as much as their employees - as compared to a factor of 52 a year earlier.
"The main reason for the decrease in earnings: many CEOs failed to achieve their targets, partly because of the war in Ukraine, the energy crisis and rising interest rates," says study leader Prof. Gunther Friedl of the Chair of Management Accounting at TUM. This led to a decrease in variable compensation, with bonuses linked to annual targets down by 19 %. Payments linked to longer-term criteria such as the share price were down 7.7 %.
"The decrease in executive pay is a consequence of multiple crises that have been with us for some time. The financial effects have now reached corporate boardrooms" says DSW managing director Marc Tüngler. "With this development, we are obviously seeing the early signs of further economic turmoil. Consequently, a challenging future has been priced into the executive compensation. For 2023 a lot will depend on how ambitious supervisory boards will be when setting targets for top executives."
"Compensation system is working well"
Criteria for short or long-term variable compensation components increasingly include environmental, social and governance (ESG) targets such as reductions in CO2 emissions, employee satisfaction or improvements in diversity. For the first time, more than 50 % (22 of 40) of all companies applied all three ESG components. In the previous year only 15 DAX companies did so. Almost all companies linked the pay of their top executives to at least one ESG element.
"The figures show that, for the most part, the compensation system is working well," says Gunther Friedl. "Even if CEO compensation is on an entirely different level than the rank and file, it is now clear: the differences can shrink - and nowadays the decisive factor is performance, which includes ESG factors."
Relatively low compensation by international standards
The CEOs received approximately 5.1 million euros on average in 2022. Consequently, their earnings remain relatively low by international standards. CEOs of non-German companies trading on the EuroStoxx 50 exchange earned an average of 7.5 million euros and Dow Jones corporations paid their top bosses an average of 24.9 million euros. However, a much higher share of compensation is tied to long-term targets in the USA (75 % vs. 45 % for DAX companies).
Gunther Friedl, Christiane Hölz, Frederik Beckendorff, Markus Frank, Hanna Scholta, Simon Allmeier, Patrick Knittl, Owen Mao, Jessica Weinmann: Studie zur Vergütung der Vorstände in den DAX-Unternehmen im Geschäftsjahr 2022. München 2023
All Figures from the study (German website)
