School pupils in Hamburg are calling for regulation of managers’ salaries

Top tax rate, directors’ liability, cap – not an extract from the current session of the Bundestag.

These were the words used by sixth-formers from Hamburg during a panel discussion on 1 October 2010 at the Wertevolle Zukunft Foundation. Their topic: ‘Excess or legitimate performance-related pay – are German managers fairly remunerated?’

Rewards for deadwood in pinstripes?

The pupils from the Sophie Barat School, the Max Brauer School and Harksheide Grammar School had done their homework. As part of the foundation’s ‘discurslernen’ project, they spent a week searching for answers, but also came up with a whole host of questions. The guests were Dr Hasko v. Bassi (Church Service in the World of Work of the North Elbian Church), Martina Dähn (Vice President of Top Executive Management at Telekom Group), Uwe Grund (Chair of the DGB Hamburg) and Dr Heiko Willems (Head of the Legal and Insurance Department at the BDI).

Highly paid managers squander millions and billions and are then sent into early but well-funded retirement with a ‘golden handshake’. Is the ratio between the annual incomes of employees and top managers still fair? Uwe Grund called for greater transparency and sustainability. “It has become excessive to have to earn ten million a year,” he said, adding, “Mr Kopper from Deutsche Bank once told me that he couldn’t find a manager willing to work for 500,000 at HSH Nordbank.” The Landesbank hit the headlines due to the unsound practices of its top executives. Commenting on this somewhat more pointedly, v. Bassi said: “There are far cheaper ways to run things into the ground!”

Reasonableness and freedom of contract

The sixth-formers have studies to back up their claims; they know the figures and astonish the guests with them. The average worker earns around 27,000 euros a year – a top manager in a DAX 30 company earns 2.6 million. Dr Willems counters: “The number of people earning over one million euros a year is between 150 and 250.” These are funds that the companies generate themselves. “So they must also be able to decide what happens to them.” In a vote, the pupils had written about the market-regulating effect. The number of managers is lower than the number of advertised vacancies, which drives up the cost per manager.

The theologian von Bassi summarises how people feel about this: “Is this a question of justice? Or is it about the fact that these high salaries are no longer socially justifiable?” He sees a strong need for regulation when society has to bear heavy burdens. However, according to the students, freedom of contract also means obliging those responsible to pay a high excess in the event of an insurance claim. If one’s own actions go unpunished, we need not be surprised by cases such as HSH and the like. Uwe Grund rightly criticises: “Directors’ liability in Germany is among the strictest in the world. Yet it is never, or rarely, enforced.” He knows what he is talking about, as he himself serves on a supervisory board. In the pupils’ view, the wealth tax offers a regulatory mechanism. However, even they must acknowledge that high earners are already among the largest taxpayers.

Companies should show greater responsibility regarding the level of top salaries

In the votes cast by the schools, 85 per cent of pupils are in favour of regulating managers’ salaries. Interestingly, however, the majority of those in favour of regulation support regulation through voluntary commitments by companies, whilst the minority are in favour of statutory regulation. The pupils are troubled by this short-term profit-driven mindset, as top managers stand to receive not only their salaries but also bonuses for achievements or cost savings. This could be curbed through consistent application of the bonus-malus system. In times of failure, the system makes itself felt quite clearly through reduced remuneration. The managers of tomorrow recommend starting with lower salaries and postponing salary increases further down the line. An interesting approach, but the audience reacts immediately. “Will top managers leave if salaries in Germany are capped?” asks a young man. This is a valid question, given that there is also a significant brain drain in other sectors, such as the medical industry. The pupils have an answer to this as well. Autonomy in one’s work, the purpose of the job and the feeling of being needed have a significant impact on employees’ motivation. And that applies to top managers too.

Panel guests praise the pupils’ nuanced arguments

Martina Dähn: “Hats off to you, I’m impressed!” She echoes the mood in the packed hall. In doing so, she is not only praising the pupil presenters. The audience is also getting involved, breaking into spontaneous applause and cheering on their representatives on the podium. These pupils have engaged very enthusiastically with the topic. A group of pupil journalists documented the work in writing and as radio reporters. The three schools summarised their findings in detailed presentations.