EXECUTIVE PAY

Europe’s executive fat cats

Wednesday 14 May 2008

“Greed is Good,” proclaimed Gordon Gekko, a high-flying corporate raider in the 1987 film Wall Street. And millions of American moviegoers agreed.

 
“Greed is Good,” proclaimed Gordon Gekko, a high-flying corporate raider in the 1987 film Wall Street.
 
And millions of American moviegoers agreed.
 
Gekko’s argument - that the unscrupulous pursuit of greater wealth was ultimately a moral force for good – gelled perfectly with the American veneration of the rich and successful.
 
Times have changed and, with the global economy in a downturn, the tolerance threshold for boardroom greed has fallen from its lofty heights of the 1980s. 
 
But there’s a key transatlantic divide here: Big bosses taking home millions – or even billions – in the US tend to garner reverent press coverage.
 
There are few greater accolades for an American CEO, than clinching a coveted spot on Forbes magazine’s list of the world’s wealthiest executives.
 
In Europe, many executives would gladly dispense with such paeans to their financial prowess. That’s because greed is anything but good on this side of the Atlantic, where an egalitarian social model remains paramount (in theory, if not always in practice). Boards that lavish multi-million euro pay packages on their top executives do so at the risk of incurring the wrath of shareholders and ordinary citizens.
 
And resentment over exorbitant executive remuneration has been reaching fever pitch lately among the European public – and the politicians who represent them.
 
In the latest swipe at big pay packets for top bosses, Jean-Claude Juncker, the prime minister of Luxembourg and president of the Eurogroup of eurozone finance ministers, told his colleagues on Tuesday that executive pay was spiraling out of control. He spoke of “scandalous” abuses in executive pay, likening it to a “social scourge”.
 
Juncker called for the eurozone group to consider ways to rein in such behavior, suggesting tax penalties to curb practices such as awarding generous severance payments – known as “golden parachutes” – to executives with questionable track records.
 
The Eurogroup ministers will have ample pickings. The average remuneration of a top European executive – including stock options, salary and bonuses - is some 5 million euros a year, according to a compensation study by Hay Group. Compare that with an average 13 million euros for top US CEO’s, and the numbers pale in comparison.
 
Larry Ellison, the chief executive of Oracle, a California-based maker of business software, took home almost $193 million last year, earning him the top spot among tech- company CEOs ranked by Forbes magazine. By comparison, the highest-paid French executive, Renault chief Carlos Ghosn, tallied a mere…$45.9 million in 2006.
 
In fact, 10 of the top 20 highest-paid executives in Europe are French, according to Foreign Policy in Focus, a US-based think tank. Galvanizing the executive-pay debate in France – a recent decision by Airbus to award its top executive an 8.2 million euro severance package when he left the company - after presiding over production delays to the A380 superjumbo and an overhaul that could see thousands of jobs slashed.
 
In Germany, the lightning rod executive was Deutsche Bank chief Josef Ackermann - he took home $12.4 million.
 
As for Juncker, he thinks it is a bit rich to ask European workers to ease off their demands for higher wages at a time when their bosses are laughing all the way to the bank.
 
Many of his fellow politicians share his sense of injustice: in France, President Nicolas Sarkozy wants to ban – or at least severaly curtail - golden parachutes...Germany meanwhile is considering capping severance payments. Since 2003, shareholders in the UK have had the right to weigh in on executive pay.
 
In the Netherlands and Sweden, shareholders also are given a look in at executive pay reports. CEO remuneration is totally transparent – anyone can find out how much the big boss makes.
 
A law currently before the Dutch parliament would crack down on fat-cat pay packets – by forcing companies to pay taxes of 30% or more on golden parachutes of 500,000 euros or more, according to the International Herald Tribune.
 
The message from European politicians to its CEOs – check your greed at the boardroom door.