Publications & News

Bonus Plans Reflect Cultural Differences

JR BECHTLE & Co.

Bonus Plans Reflect Cultural Differences

JR BECHTLE & Co. | March 2020 | Publications

Bonus Plans Reflect Cultural Differences

America may no longer be the “land of unlimited possibilities” however, there may be more opportunities than in Germany or elsewhere in Europe. For example, in terms of earning opportunity it’s true that on average American executives, especially of very large companies, earn significantly more than their German counterparts. The average income of board chairmen is likewise much higher in the U.S. than in Germany, and has been rising at a faster clip. When it comes to average compensation, the ratios for top management to the median pay for all other workers ranges, according to some studies, from 350-500 to 1, while in Germany the ratio can range around 70 to 1. These gaps have been steadily widening, but again at a faster rate in the United States than in Germany.

Of course, if you’re among the select few top earners in the U.S. you may be quite happy with this. That is, if you can ignore the larger effects on society. From the perspective of the “average person”, things look a bit different. The fact remains, however, that it is more than just the base salary but rather the performance-based bonuses, stock options, and profit-sharing plans which can assume completely different dimensions in the United States than in Germany. This holds true as well for smaller and medium-sized companies.

Based on the regular compensation reviews by JR BECHTLE & Co. which examine compensation parameters for German firms in the U.S., it’s clear that American managers in comparably-sized companies receive about the same base pay as their counterparts at German subsidiaries. However, it was also shown that the American companies’ performance-based compensation is substantially above that of those at German U.S. subsidiaries of equivalent size. While the president of a German subsidiary has a bonus corresponding to around 25% of base salary, the president of a similarly-sized American company will often see a significantly higher bonus, even exceeding his or her base salary in a particularly good year. This is also influenced by the fact that American companies less frequently employ bonus caps or limits, but simply pay for results.

This reflects different practices and attitudes in Germany and the United States. The American, for example, doesn’t object to the idea that the bonus next year may end up being much lower than this year’s as long as there’s a significant upside opportunity the following year. In Germany there’s a greater desire for stability at the expense of large swings up and especially down. As a subsidiary, the U.S. entity often has the German attitude imposed on its bonus plan for top management. Perhaps this also may be due to an attempt to achieve consistency across all global entities.

On both sides of the pond, it’s of course vital to have a transparent and measurable performance bonus plan in place. It should be based on results and key performance indicators, and should align with the overall company’s short- and long-term strategies. The goal is to improve performance and motivate through setting realistic but also stretch targets.

For subsidiary management it’s important to acknowledge that while the short-term upside on the bonus side may be less than that of a “standard” American firm, the longer-term upside could be greater due to fewer strong downward “plunges” during bad times. German management, on the other hand, could benefit from leveraging the American’s openness to risk and his or her willingness to accept greater fluctuation.

Testimonial Spotlight

“Over the past 10+ years, my interaction working with JR BECHTLE & Company has been extremely positive. The staff is extremely thorough in ensuring they have a very solid understanding of the role that needs to be filled as well as the company culture. They spend quite a bit of time upfront collecting information from their client. This is not only important from a company standpoint but also from an applicant standpoint. The results of their detailed process are solid applicants presented for the role. They are a strong recruiting partner and ensure close communication during the whole process to ensure expectations are aligned. For these reasons, I highly recommend JR BECHTLE & Company.”
Global HR Business Partner

Pro Audio Solutions Channel, Sennheiser

Globalization- Turning “Us vs. Them” to “We”– part 1

Understanding the perspectives of both headquarters and subsidiaries. “The Rift” a real-life issue for many of us in the world of European subsidiaries in North America. Most importantly how to come together and find a solution to be successful.

Fallstricke bei Bewerbungsgesprächen in den USA

Es ist allgemein bekannt, dass Bewerbungsgespräche für Arbeitgeber einige Fallstricke bergen können. So dürfen in Deutschland in einem Bewerbungsgespräch Fragen nicht

Intercultural Candidate Preparation – Some Do’s and Don’ts

The special nature of our business – recruiting for firms based mainly in Europe – has required us over many years to adapt and fine-tune our “boutique” search approach to accommodate for…

Executive Recruiting – Consultative Boutique Recruiter

Eine Executive Search Firma ist ein professioneller Service, welche in der Rekrutierung von Mitgliedern der Unternehmensleitung und anderen leitenden Mitarbeitern für ihre Kunden tätig ist.

Vergütungsfragen – Amerikanische Niederlassungen

Vergütungsstrukturen, noch dazu über wirtschaftliche und kulturelle Grenzen hinweg, sind per Definition uneinheitlich und komplex.

Parent Companies Should Guide Not Dictate

The relationship between mother and daughter is often fraught with tension, as we all know. This is not very different from relationships between a German parent company and its subsidiary in America.

Salary Levels: US vs Europe – And the Winner Is…

Many European executives, used to high labor costs and the reputation that their labor markets are the most expensive ones in the world, are often surprised that the requested salary levels for U.S. employees…

Management Consultancy and Advisory

Working between different cultures with our clients on the fundamentals and ramifications of new management selections before the recruiting project process even begins.

The Myth Of “Mobility”- What Is It Anyhow?

The question asked frequently by European companies during the recruiting process: If Americans are famously known to be highly mobile…

Bonus Plans Reflect Cultural Differences

America may no longer be the “land of unlimited possibilities” however, there may be more opportunities than in Germany or elsewhere in Europe.