Letter from Berlin Merkel Takes on the Fat Cats

Chancellor Angela Merkel has attacked fat cat salaries and bonuses paid to German CEOs. The criticism chimes with a growing public feeling of inequality and should help her to woo left-of-center voters ahead of important regional elections next year. But she doesn't plan any legislation to curb salaries.

By SPIEGEL Staff


Merkel addressing the CDU party congress last week, when she touched off a debate about fat cat salaries.
DPA

Merkel addressing the CDU party congress last week, when she touched off a debate about fat cat salaries.

Chancellor Angela Merkel's relations with Germany's business community, already dented by her policies on climate change, her recent softening of labor reforms and her criticism of China's human rights record, have suffered a new setback with her criticism of high salaries and bonuses paid to top executives.

She touched off a debate about fat cat salaries in a speech to the annual party congress of her conservative Christian Democrats last week in which she complained about exorbitant incomes being paid to executives.

"Just because an American car executive makes a thousand times what an employee earns, it seems a German car manager should also get the kind of rise he would never grant his workers," she told CDU delegates in Hanover.

"I don't want to comment on the success of US car companies, but I've been told Japanese carmakers are particularly successful. Bosses there earn only 20 times a worker's salary."

Comments Anger Business Leaders

Merkel's spokesman Thomas Steg stressed on Monday that she doesn't plan any legislation to curb management pay. But her comments have deepened a rift between Merkel and German industry. The head of the German Federation of Chambers of Industry and Commerce, Ludwig Georg Braun, said the government is "endangering the economic recovery." The head of the Federation of Employers, Dieter Hundt, said Merkel's coalition was heading down a "dangerous path."

Merkel wants to attract votes ahead of important regional elections next year. Attacking big earners is always an easy way to gain approval, and is an ideal issue for the CDU as it probes its way into the left-of-center ground vacated by the recent leftward shift of the Social Democrats, with whom the CDU shares power.

In recent elections, fat cat salaries were always the domain of Social Democrat campaign speeches. Now Merkel has staked her claim on that issue. But her attack on executive pay also reflects widespread concern about growing inequality in German society.

German CEOs enjoyed a surge in income last year while ordinary workers saw average pay rises of 2.8 percent.
DER SPIEGEL

German CEOs enjoyed a surge in income last year while ordinary workers saw average pay rises of 2.8 percent.

At the top of the pile are the country's chief executives, who regard globalization as justification to earn as much as their highly-paid counterparts in the US. They claim they're in the same globalized management market, but that's just a pipe dream. There aren't many US companies desperately seeking German executives.

At the bottom of the heap are the many employees whom globalization has brought lower incomes. The recent debate about introducing a minimum wage in Germany has arisen because international competition has pushed incomes below the German poverty line in a number of industries.

Some business models now only work with hourly wages of five or six euros. That's not enough to live in Germany, and this trend has led to a growing sense of social injustice. At last week's party conference Merkel made clear what she regards as fair. If the head of an automotive company earns a thousand times more than a car worker, that's too much. Twenty times a worker's salary is OK, she says.

A German carworker earns just under €50,000 a year on average. So, by Merkel's standards one million euros would be a fair salary for the head of the auto company.

High Pay for High-Performing Porsche CEO

Wendelin Wiedeking, chief executive of carmaker Porsche, earned more than €60 million in the last business year. Is that unfair?

When Wiedeking took over as CEO at Porsche in 1992, the company was close to bankruptcy. He had to stake his entire personal wealth to get banks to agree to a capital hike. After he had managed to restore Porsche to profitability within two years, the Porsche and Piech families that own the ordinary stock guaranteed him a portion of the corporate profit -- reputedly 0.9 percent. At that point no one could foresee that Porsche would one day generate a profit of €5.9 billion -- 0.9 percent of which yielded €53 million for CEO Wiedeking.

Nevertheless supervisory board chairman Wolfgang Porsche said Wiedeking was "worth every euro." When he took the job Porsche had a market capitalization of €300 million. Now it's valued at around €25 billion.

Even Porsche's factory workers, who will receive a bonus of €5,200 this year, don't have a problem with the millions their boss is receiving. When Wiedeking told an employee gathering that the management's pay in this record year would be "pretty decent," the workers laughed and applauded their boss.

Merkel is aware of that, and her ire is more directed at someone like former DaimlerChrysler CEO Jürgen Schrempp, who represents maximum pay for minimum performance. He merged Daimler-Benz with Chrysler, bought stakes in Mitsubishi and Hyundai and pursued grand visions: He wanted to create nothing less than World Inc. That strategy pushed the healthy Daimler-Benz into a severe crisis while turning the CEO into a rich man.

Former DaimlerChrysler CEO Jürgen Schrempp presided over an unsuccessful merger between Daimler-Benz and Chrysler but made a killing on stock options.
DDP

Former DaimlerChrysler CEO Jürgen Schrempp presided over an unsuccessful merger between Daimler-Benz and Chrysler but made a killing on stock options.

In addition to his salary, Schrempp received stock options. The worse his merged company performed, the further the share price fell, and the cheaper the stock options he received.

When his successor Dieter Zetsche restructured Schrempp's legacy, tens of thousands of workers lost their jobs. The share price climbed, and that boosted the value of the stock options Schrempp had collected. They're now likely to be worth well over €50 million. His failure paid off.

It's less the size of the salaries and bonuses but the circumstances in which they are paid that run counter to the public's sense of fair play. The general feeling is that when profits fall and workers are made redundant, the CEOs should earn less. But many top executives have long since escaped from such a mechanism.

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