“Say On Pay” In Germany: The Regulatory Framework And Empirical Evidence

A shareholder vote on executive compensation, the so-called “say on pay”, has become one of the most prominent corporate governance tools for regulators in their urge to tackle excessive executive remuneration. Its implementation in the United Kingdom in August 2002 has triggered–not least because of a Recommendation of 2004 by the European Commission–a broader discussion of this instrument which gradually led to the adoption of related rules throughout Europe. In Germany, a “say on pay” was enacted by the German Parliament ( Deutscher Bundestag ) as part of the Act on the Appropriateness of Management Board Compensation ( Gesetz zur Angemessenheit der Vorstandsvergütung–VorstAG ) on 18 June 2009, it passed the second chamber of the German Parliament ( Deutscher Bundesrat ) on 5 July 2009 and was promulgated in the legal gazette ( Bundesgesetzblatt ) on 31 July 2009. The new law became effective on 5 August 2009. In the meantime, the United States also enacted provisions with respect to a shareholder vote on executive compensation. The Dodd-Frank Wall Street Reform and Consumer Protection Act, often only referred to as the “Dodd-Frank-Act”, introduced a mandatory, non-binding “say on pay”, as well as a more specific shareholder vote on payments in the context of a change of control (“golden parachutes”). The SEC recently adopted rules in order to implement these provisions.