The Regulation of Executive Remuneration in New Zealand and Germany

Abstract

This paper gives an overview about the regulation of executive remuneration in New Zealand and Germany. The issue is particularly topical as Germany recently enacted an amendment to its Stock Corporation Act (Aktiengesetz) in reaction to the 2007/2008 financial crisis. In the introduction, the paper will show that the issue of executive remuneration is one that has been subject of a lively debate for years. After an explanation of the principal-agent conflict underlying executive remuneration, the legal system dealing with executive remuneration in New Zealand will be analyzed. The analysis will focus on four major topics: Substantive provisions, disclosure, the role of the board and lastly, shareholder participation. In the next section the corresponding provisions in Germany will be assessed. After that, the paper deals with the question, whether New Zealand’s provisions can act as a template for legal alterations in Germany and vice versa. The paper then delineates suggestions for further reform and argues that the legislator should forbear from radical intervention and leave the formation of sound and innovative remuneration practices to the companies. In its conclusion, the paper emphasises the responsibility of decision makers to base their managerial behavior on high ethical standards. These standards should keep them from overreaching shareholders with overly favorable pay arrangements.