By Jo Best, 23 January 2004 12:35
NEWS One of the biggest battles in legal history is raging in Germany – over the rights and wrongs of giving out a €1bn bonus to a CEO.
The CEO in question, one Klaus Esser, ex-boss of the Mannesmann telecoms group, was awarded a €15m payout for his work when the company was bought by Vodafone in 2002.
While €15m should be enough to keep anyone in beer and crisps for a while, Josef Ackermann, CEO of Deutsche Bank, who was responsible for approving the bonus, said that Esser was underpaid – and that the Mannesman executive was hard done by and deserved a lump sum more in the region of €1bn.
Although the idea of any CEO being worth such a princely sum might seem a tad on the generous side, Ackermann's logic does hold water to a degree. Speaking in a defence statement yesterday, he theorised that if the company had made €150,000 no one would have kicked up a fuss over a €1,000 payout. Given that the company made €150bn, a €1bn sum wasn't outrageous, but "justified rewards".
Paying a CEO €1bn on top of their no-doubt substantial salary - no matter how good their performance - would raise a few eyebrows in England. Germany, however, doesn't have the same laws or business culture to govern director payouts.
Esser's golden handshake is just one part of the legal wrangling hanging over Mannesman, following €60m in director bonuses being shared between six men following the Vodafone buyout.
One of the accused, Joachim Funk, in the dock for alleged breach of fiduciary duty, said that the bonuses were a "sensible business decision" and "based on performance and success" of the company at the time.
Is a €1bn bonus ever justified for a CEO? Let us know in the Reader Comments section below.
Comments
There are 28 comments. Join the discussion
1. RobinDG
No. A €1bn bonus would be utterly, utterly, obscene, on any scale, regardless of how it was justified.
If it was his firm which he built from zero or near-zero, then it would be his money. Phillip Green of BHS invested and made his ideas and his money work, and made a similar sum, but that wasn't a "bonus" - it was his equity's increased worth, and rightly his.
There comes a point when common sense on bonuses applies - and that point has to be somewhere short of 1 billion Euros.
2. Chris Dulya
No way. If a company has so much extra money, then it is obviously ripping off the consumer.
3. Jasper Wrddlprmpf
In almost all cases, someone who has achieved a CEO's position is just a turd who sucked his superiors' asses. Most CEOs aren't worth their own feces. These pieces of shite should be horsewhipped and subsequently hanged in public.
4. anonymous
I don't think there should be any artifical upper limits imposed on bonus payments, it should be only directly proportional to the success of that individual. if it comes to €1bn then be it, the man is eligible to his due share, as long as it's rightly calculated.
5. K Curtis
Of course it bloody isn't. How many starving children / HIV sufferers / war victims could be helped with the money that will, presumably, buy that guy a yacht and a big mansion. Bah.
6. Graham Birchall
I wouldn't like his tax bill
7. anonymous
It is Ok - as long as it's me. Otherwise I think not.
8. anonymous
That would be an obscene amount
9. anonymous
No. Sinful.
10. anonymous
Has he cued cancer, AIDS, world poverty, averted major war, averted minor war, fixed the hole in the ozone layer, created a fusion reator
Answer yes to any of the above and he can have the money. Otherwise he can have the McDonalds vouchers I got in my freebie newspaper this week. He'll have to pay the postage though.
11. Volker Hirsch
Ackermann's calculation is intriguing though obviously not meant to be a claim. The amount in question is EUR 15m, which wouldn't be outrageous at all for a CEO for one of the country's biggest companies who did extremely well, neither in England or other countries.
One needs to bear in mind that the supervisory board members are in a criminal (!) court for awarding EUR 15m to Esser who managed to hand out a very, very substantial increase in shareholder value to the Mannesmann shareholders in a very short period of time.
It is true that Germany only recently introduced corporate governance principles but it must also be stressed that both top management salaries as well as severance payments (out of gratitude or otherwise) have not been anywhere near they are/were in Anglo-Saxon countries. It is due to this history that the case is so extraordinary and apparently triggered Mr Ackermann - who does not always handle the PR side of things too fortunate anyway - remark.
12. John Conry
If the CEO in question had single-handedly taken all the decisions AND done all the work, then there might be some justification. However, what about all the other management and staff who actually made things happen and did all the hard work? I would like to see the bonus shared equitably among everyone who contributed to the excellent company results and not just the guy at the top.
13. Andy Le May
Simply obscene, greedy, selfish and misguided. I doubt if anyone could spend that amount of money, unless you happen to 'really like' flowers or theme parks or scotland. Another example of super-rich 'fat-cats' abusing their positions and inflating their own worth on this planet. If the company can afford to give away that much money then give it to some worthy causes that will make a huge difference to millions of people, like providing clean water, medication and education. Isn't that a better use for the money than giving it to just to one person who frankly doesn't need it so he can buy some bigger diamonds for his wife or a few more mansions. It's time we all got our priorities straight.
14. Alan Ainsworth
Ackermann's logic doesn't hold water at all.
Esser was CEO of an established company with a known stock-market value when Vodafone made their bid. By refusing the bid he forced a higher bid from Vodafone.
He deserves his reward for the improvement in the bid, not for the total value of the bid and that is why neither his shareholders nor the German courts should begrudge him his €15 million. After all, many of the shareholders of Mannesmann were pension funds and charities who now find themselves more able to meet their objectives - whether to pensioners, starving children, HIV sufferers, or others.
I feel less enthused by Chris Gent's proposed £10 million bonus, awarded for over-paying for Mannesmann.
As to €1 bn - such a figure has never been on offer to a European CEO as a bonus. It was just a Josef Ackermann debating point.
15. John Wilson
What about the workers?
In my experience CEO's alone do not a business make. There are probably 1000's of staff involved who put in just as many hours and have probably been told that no bonus is available!
In many cases I think it's hard to justify a CEO salary package - let alone a bonus. Can one person really make that much impact on such a huge organisation?
16. David Tibble
I wouldn't mind if he paid the proper tax on it! Corporations & Tycoons it would appear are paying less and less tax on their incomes, hence our ever increasing burden. Other than that its just another corporate moral obscenity.
17. Mark Hosey
There is much to commend Jaspers no nonsense approach to the problem concerning fat cat bonuses. However, much as I too would happily attend a CEOs lamp post lynching and could indeed be persuaded to kick the barrel from under the feet of the offending CEO in receipt of or sactioning this type of obscene payoff, I believe a simple bit of common sense, fair play or legislation (my preference) is what is required. My last bonus was based on a percentage of my wage (and a pretty damned small one at that!!) and not on the companys turn over. The pot from which everyones bonus was paid was based on the companys net profit and not the companys turn over. All those receiving a bonus were considered "members of a team" and so we were all awarded the same percentage bonus. I put it to you, these people are just team members and any bonus they are awarded should be based on exactly the same rules governing bonus payments to those lower down the pecking order, who lets face it do the work that these CEO's take the credit for. There is no one in this world works enough hours or does any kind of work deserving enough of such obscene payoffs (well ok so there is perhaps that stunt man who nails his own testicles peice of wood.............but apart from him)
18. anonymous
Why shouldn't he get this bonus? Just as long as it's in line with those paid to the rest of the workers who helped the company achieve such profits. If this guy doesn't get it then you can be sure Mr CEO of Vodafone will probably increase his bonus.
Don't forget these large coporations pay their taxes to their respective governments who should be helping the worlds needy rather than wasting it on 'Domes', 'speed cameras' and jollies to world summits where bog all is ever achieved.
19. anonymous
It is ridiculus. He didn't achieve success on his own - what about the employees role in this. Don't they deserve the same ratio of bonus to basic salary. I don't see shareholders being happy about paying out all that money that but everyone needs to be treated fairly.
20. anonymous
You never hear of a CEO paying anything back when a company goes under! Strange that.
21. anonymous
What difference does it make? Even with the existing payouts, these people are no longer acting in the interests of the company or its shareholders. They are making decisions based on personal gain - in some cultures they are called bribes.
22. anonymous
What difference does it make? Even with the existing payouts, these people are no longer acting in the interests of the company or its shareholders. They are making decisions based on personal gain - in some cultures they are called bribes.
23. anonymous
No - A CEO with vision is very important, but vision without some very bright people doing the real work is just a pie in the sky.
24. Chris Stevens
How in the name of common sense can Ackermann retain any credibility by issuing such an unconsidered and rash opinion. It only serves him as a professional diservice - do the maths, that kind of sum would cover 2000 well paid employees for 20 years!
25. Shamit Ghosh
If my CEO can turn around a company, thus creating wealth for the sharholders to the tune of few hundred billion pounds/dollars, I believe he/she has earned the right to make that bonus. It must always be remembered that successful companies create wealth not only for the company or its employees but for the society at large. I would be proud to work for someone who can create wealth and not put him down.
26. Jon Mason
Flawed logic - a 150000 profit could conceivably be down to the work of one person, a figure a million times larger most certainly could not. Isn't it time that boards referred to research data - eg Jim Collins' Good to Great, which debunks the myth of the charismatic leader adding real value to a corporation - instead of insecure CEO's still trying to prove themselves to their dads and everybody else?
27. Srinivas
I think it is justified if CEO really added a value that led to the profit several times of that, and it is really because of CEO.
28. cris
Disgusting, peoplee are unemployed, families are struggling and this guy deserves 1 bil? HA