Germany's SPD out to cap CEO salaries

Germany's center-left party, resurgent in the opinion polls, is continuing to push a social justice agenda ahead of September's general election.

The Social Democratic Party (SPD) this week unveiled a draft law that would limit the tax deductibility of board member salaries in excess of 500,000 euros ($528,000). On top of that, the pensions of former board members would no longer be tax deductible as an operating cost.

Other proposals in the bill would see the company's general assembly have a right to determine the maximum difference between a board member salary and the company average, while the firm's supervisory committee is to be allowed to demand the return of pension payments should a board member be dismissed for poor performance.

"We don't want to provoke an envy-debate against managers. Exceptional performance should be rewarded exceptionally," SPD parliamentary leader Thomas Oppermann underlined as he presented the draft law at a press conference this week. But "in some board levels, all proportion ... has been lost. Disproportionately high salaries, generous bonuses and pensions are being paid, even if the company is in a bad state because of bad decisions."

Oppermann pointed out that during Germany's post-war "economic miracle" and up until the 1980s, board members were earning around 15 to 20 times their company's average salary. Currently, however, some managers are earning 50 or even 100 times as much as their firm's average employee.

Losing all proportion

The SPD is hoping to pass the bill through the parliament before the election - which would require the cooperation of Angela Merkel's Christian Democratic Union (CDU), the senior partner in the government's grand coalition.

So far, the response from that quarter has been mixed. Merkel's chief-of-staff Peter Altmaier suggested at the weekend there was some room for compromise, while CDU General Secretary Volker Kauder was heard making similar noises last week - if only for tactical campaign reasons. "I'm not going to defend 10-, 11-, 12- million-euro salaries in the campaign," he was quoted in the "Bild" newspaper telling his party colleagues. Merkel herself, also present at the meeting, took his side, the mass-circulation daily reported.

Even Finance Minister Wolfgang Schäuble, who has shown himself skeptical about the SPD's leftward swing in recent weeks, seemed open to the idea. Salaries have "sometimes got so excessive that they endanger the acceptance of a social market economy," he told the AFP news agency at a meeting with his French and Polish counterparts in Paris. "Maybe we should work internationally to find common rules on the salaries of managers."

But other CDU members were less than impressed. The party's deputy parliamentary leader Michael Fuchs, for instance, told the "Handelsblatt" newspaper, "We in the coalition decided that there would be no tax increases. Anyone who limits tax deductibility is raising taxes."

This resistance notwithstanding , some of Germany's top companies have apparently been chastened by the new political wind and the unpleasant headlines that million-euro pay-offs tend to generate. Volkswagen's supervisory committee, for instance, convened on Friday to discuss capping the company's CEO salary at 10 million euros a year.

As it happens, the SPD has some explaining to do when it comes to Germany's biggest car-maker. Two major Social Democrat figures - Lower Saxony's State Premier Stephan Weil and Economy Minister Olaf Lies - are on VW's supervisory committee, which means they helped to ensure that former VW board member Christine Hohmann-Dennhardt, also of the SPD, received a 12-million-euro pay-off after only 13 months in the job. The CDU has called for an inquiry into the affair.

Too far, not far enough?

Meanwhile, Germany's main opposition, the socialist Left party, dismissed the SPD's bill as "fainthearted and largely ineffective." In a statement issued on her party's website, the Left's main candidate Sahra Wagenknecht said, "Everyone knows the proposed limit on tax deductibility won't end the self-service culture of the management boards."

Nor would giving general assemblies more power end the disparity in salaries, she argued, since assemblies are "often dominated by financial investors and major stockholders." The Left's solution, instead, is to set legally-defined a maximum pay gap between a company's management board and its average salary.

Still, perhaps sensing an opportunity for government, the Left party has also been friendly to the new social justice initiative the SPD has developed since Martin Schulz became the new candidate a month ago. "The Left party nevertheless would support the SPD's small steps in the right direction," its statement went on to say.