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New Hay Group Study Reveals Pay Packages of European Executives Reaching Levels Comparable to their US Counterparts

A new study by Hay Group, a global management consulting firm, shows that European executives are not only closing the pay gap on their US counterparts, but in many cases earning even more. The detailed study can be accessed from the above URL.

Philadelphia PA 02-25-04 - A new study by Hay Group, a global management consulting firm, shows that European executives are not only closing the pay gap on their US counterparts, but in many cases earning even more.

Hay Group surveyed 153 publicly traded European companies to determine the prevalence and level of executive compensation practices, covering nearly 1,000 executives from 11 European countries. These results were then compared against data from 63 companies of a similar size from Hays US Executive Compensation Survey, covering nearly 700 executive jobs.

The study showed that there is a greater diversity of executive compensation levels and practices in Europe than in the US. Within Europe, typical base salary levels are highest in the UK, and the highest bonuses tend to be paid in Germany. Long-term incentives are greatest in large French and German companies, which pay very well-up to 30% above the European norm. The lowest packages tend to be in the Nordic countries, which are often more than 30% below the European norm.

The study also showed that total cash compensation-comprised of base salary and annual bonus-has begun to converge across continents. For example, the survey showed that in companies with sales of $35 billion, both European and US CEOs earned on average $2.4 million in total cash compensation. However, CEOs of large US companies still have the greatest earning potential. The expected value of long-term incentives-predominantly stock options-is more than double for US CEOs than for their European counterparts.

Below the CEO level, the story is somewhat different. Although the use of long-term incentives is much more prevalent in the US, in many cases this is offset in Europe as heads of key divisions and functions earn higher salaries and bonuses. Even when larger long-term incentives are considered, many European executives have packages at or above US levels.

The study challenges the perception that executive pay is lower in Europe than in the US" according to Doug Jensen, head of Hay Groups US executive compensation practice. This perception is true for the very top jobs in the biggest companies, but pay packages at US companies drop very quickly as you move down the organization-especially if stock options continue to lose favor as a long-term incentive vehicle. By contrast, many European companies have more egalitarian cultures, and senior executives often have the same incentive opportunity as the CEO (proportionate to salary). The result is that packages often exceed those for the US equivalents."

It is striking that many top European executives have higher base salaries and lower incentive remuneration than their counterparts in the US," said Jensen. Compensation committees in Europe should consider whether they have the right balance of fixed and performance-related remuneration, especially as pensions and benefits often add substantially to the fixed package."