Overview

On August 5, 2009, the new German Reasonableness of Management Remuneration Act (in German: Gesetz zur Angemessenheit der Vorstandsvergütung – VorstAG) entered into force.

The VorstAG is a response to the financial crisis, which the Federal Government of Germany considers a result of, inter alia, misguided incentive-based management remuneration particularly in the case of financial institutions. An example would be remuneration policies that incorporate the earnings and share price of the company and thereby, in the opinion of the German legislator, tempt managers into carrying out irresponsible risks. Consequently, at the essence of the VorstAG is the principle of sustainability. Instead of striving for short-term goals, the managers of German stock corporations are to act in the best interests of the long-term welfare of the company. In addition, the new legislation intends to strengthen the responsibility of the supervisory board in determining management remuneration, as well as improve transparency to both the shareholders and the public.


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