CEO pay packages often spark controversy, triggering op-eds, shareholder protests, and social media outrage. As Daimler's Dieter Zetsche approached retirement, attention turned to his compensation, especially considering the company's struggles to adapt to the future of mobility. This article delves into Zetsche's compensation, comparing it to other CEOs and examining the broader context of executive pay in Germany.
Daimler's Performance Under Zetsche
When Zetsche took over in 2006, Daimler's stock was just over €43 ($48) a share. At the beginning of May, it stood at €58 a share. While this appears to be a healthy increase, Daimler's performance generally mirrored the DAX average. Despite its recognizable name it can't seem to get a grip on the future of mobility.
Challenges During Zetsche's Tenure
Daimler faced several challenges during Zetsche's leadership. In 2018, the company recalled around 800,000 vehicles throughout Europe because of emissions cheating software. New emissions cheating software was found in more Mercedes in April. The company's vision for autonomous driving, mobility services, and battery-powered vehicles looks unclear.
One of Zetsche's most significant failures was the integration of Chrysler into Daimler. This misfire cost the German company much more than the $36 billion it spent in the acquisition. The Germans blamed the mess on a lack of synergies, but they themselves were to blame and walked away with nearly nothing. Sergio Marchionne, who brought Fiat back from the brink and turned around Chrysler, succeeded where Zetsche failed.
The Debate Over CEO Compensation
The question of whether CEOs are overpaid is a recurring theme in corporate governance discussions. What good do former CEOs do for their former employers anyhow? Would they have performed the same, better or worse if their retirement package was 10% less or even 50% less? These are impossible questions to answer. Yet if all companies paid less and gave less generous retirement packages, the remunerations arms race would slow down. A concentrated global effort is necessary to tackle this problem. CEOs, even in splendid retirement, must be brought back to reality.
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Contracts are contracts, and Dieter Zetsche was sure to look over his closely before signing on the dotted line.
German Co-determination Model
Germany's "co-determination" model requires that companies with more than 500 employees give half of the supervisory board seats to workers.
Zetsche's Future Role
Despite the editorials about overpaid CEOs and the dire state of Daimler, Dieter Zetsche is not going away. Even with his big retirement package in his pocket he will not be relaxing in the sun for long. He is already planning on coming back in 2021 as chairman of the company's supervisory board.
Comparison with Other German CEOs
In 2018, the highest-paid CEO in Germany was Thomas Heidenreich of chemical company K+S, with earnings of 11.7 million euros (13.2 million dollars). Heidenreich's high earnings were a result of the "cumulative payment of variable remuneration over several years," according to hkp. Oliver Baete of German insurer Allianz followed with 10.33 million euros, and Bill McDermott, CEO of software company SAP, with 9.97 million euros, according to hkp.
The decline in remuneration among the automobile manufacturers' CEOs was particularly remarkable, according to hkp. The CEO of Germany's largest carmaker Volkswagen was not included in the comparison due to changes in the company's management. Herbert Diess, who became CEO of Volkswagen in April 2018, earned 8.49 million euros in 2018 and would be ranked 6th in hkp's list.
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