ATX Executive Board compensation before the transition

• Compensation of the CEOs in Austria's top companies increased by around 16% in the financial year 2018 - corporate profits fell
• From 2020, the European Shareholders Rights Directive will enforce fundamental changes in the decisions and reporting on Executive Board compensation

hkp/// group analysis "Annual Report Evaluation of the ATX Executive Board  Compensation 2018"

Frankfurt am Main, 25 April 2019. The compensation of the CEOs of Austria's largest listed companies (ATX companies) rose by an average of around 16% to around €2.1 million in the 2018 financial year. This development is mainly based on higher fixed salaries, which have risen on average by around 23%. The variable, performance-based compensation increased by an average of 6%.

The higher salaries are contrast to the developments in company results. Thus, the ATX companies recorded a median decline in net income (profit after tax) for the financial year 2018 of around -17%. In the previous year, a significant jump in profits of around 63% was recorded, with an increase of around 15% in compensation for the ATX CEOs.

This is the result of the current analysis "Annual Report Evaluation of the ATX Executive Board Compensation  2018" by the consulting firm hkp/// group. Since 2013, remuneration experts have been examining the direct compensation(fixed plus variable compensation without pensions and benefits) of the full-time CEOs. The current 2018 fiscal year data set includes the corporate leaders of 19 ATX companies as defined by this definition.
"In the 2018 financial year, we can see a more heterogeneous development of compensation in ATX," explains study’s author and hkp/// group Senior Manager Jennifer Schulz. "Two newcomers to the index, a new peak salary, different developments in corporate earnings and many special bonuses are evidence for a lot of movement. By contrast, deficits in the disclosure of short-term and long-term variable compensation as well as pensions and fringe benefits, which still make the analysis according to international standards difficult, have remained constant."

hkp/// group Managing Partner Michael H. Kramarsch looks to the future: "The implementation of the European Shareholders' Rights Directive is forcing the compensation of the Management Board in Austria in terms of design, transparency and communication into a visual transition. Executive Board compensation will become a mandatory topic for all listed companies at each annual general meeting starting next year. According to today's remuneration reports, the majority of companies would fail because of insufficient disclosure in the remuneration report. Businesses should act urgently."

Results in detail
The average compensation of around €2.1 million for a CEO of an ATX company calculated for the 2018 financial year, is only slightly below the previous highest figure for the 2015 financial year (€2.2 million).
A total of two ATX CEOs receive a direct compensation of more than four million euros each and thus form the top earners in the ATX: OMV with €4.47 million and BAWAG with €4.45 million. The bottom of the remuneration rankings in the ATX is occupied by the newcomers DO & CO (€734,000) and FACC (€387,000). Thus, the ratio between the highest and the lowest direct compensation of a full-time CEO in the ATX is equal to 11.5. Thanks to special bonuses in substantial amounts, CA Immo and Immofinanz are among the top 10 companies with the highest direct compensation.

Fig. 1: Highest and lowest CEO direct compensation in the ATX in the 2018 financial year (only CEOs full-time in position)

In the international comparison, the level of compensation in the ATX companies is, according to preliminary estimates, well below the leading European listed companies (STOXX companies). Compared with the companies of the German MDAX, which are more similar in terms of sales, employee numbers and market capitalization, the ATX companies are moderately positioned with a gap of around 18%.

Fig. 2: Direct compensation of CEOs in the ATX in the 2018 financial year in international comparison (only CEOs full-time in position)

Compensation transparency: Apart from a few lighthouses it is surrounded by darkness
As in the previous years, all ATX companies individually report the compensation of the Management Board. However, only a few companies meet international standards, including OMV, Wienerberger and Telekom Austria.
Currently, only six of the 19 considered ATX companies disclose the variable compensation of their Executive Board members, broken down into annual and multi-year elements. In many cases, the reference year for the variable compensation is not clear stated or the payout values are reported for the previous year and not for the current financial year. Pensions and benefits are often not reported or only partially disclosed. Only nine companies indicate contribution levels for pensions.

According to the analysis, this disclosure practice meets the requirements of the Austrian Corporate Governance Code, but does not meet today’s international market standards. hkp/// group study’s author Jennifer Schulz points out that major investors and proxy advisors internationally have recently very clearly demanded the anchoring of the pay-for-performance mechanism in remuneration systems, which in turn requires clarity and transparency in the remuneration reports, and enforced these demands in general meetings. "Companies should take these signals seriously and address these changes with regards to implementing the European Shareholders Rights Directive," adds the remuneration expert.

European Shareholders Rights Directive: Transition of the Executive Board compensation
By June 2019, EU member states must implement the second European Shareholders Rights Directive into national law. In Austria, this is ensured by the Aktienrechts-Änderungsgesetz 2019  (AktRÄG 2019). The changes have far-reaching consequences for corporate governance and executive compensation. For example, the annual general meeting of listed companies will be involved more than ever in decisions on the compensation of the Management Board. In concrete terms, shareholders will vote each year on the remuneration report. In addition, the annual general meeting must vote on the remuneration system for the executive board at least every four years (Say on Pay) - for the first time at the AGM 2020.

As a result, the compensation of the Management Board changes from a marginal issue to a fixed agenda item at the general meetings of listed companies in Austria. However, the AktRÄG2019 does not currently promise any real improvement in the transparency issue. There are no specific requirements for the compensation disclosure. At the same time, new terms ("granted" and "due" compensation) are being introduced but are not defined, whereby a reference is made to outstanding transparency provisions by the EU. According to the hkp/// group experts, however, the latter are completely non-binding and, in the current draft version, are technically and substantively flawed.

"The Austrian legislator is missing out on the opportunity to define target-oriented requirements for the compensation of listed companies at a national level," regrets hkp/// group Managing Partner Michael H. Kramarsch. "Based on the currently proposed new regulations, companies are to face difficulties with the first say-on pay in 2020," says the corporate governance expert. He recommends that companies follow the international best practice of the remuneration statement and prepare in good time for the coming annual general meeting season with all the innovations in the design, presentation and communication of executive compensation.

Contact
Thomas Müller
Head of International Marketing & Communication
Tel:    +49 69 175 363 323
Mobile:    +49 176 100 88 237
Email: thomas.mueller@hkp.com

You would like to know more about this topic?

Arrange a (telephone) appointment with Thomas Müller