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DaimlerChrysler Comes Clean (Finally)

Posted by: Gail Edmondson on February 1, 2006

It was a small move that spoke volumes. On Jan. 31 DaimlerChrysler Chief Executive Dieter Zetsche announced he will reverse the company’s long-standing tradition of keeping executive pay secret. Going forward, DaimlerChrysler will publish the details of individual pay packages including Zetsche’s own.

Bravo. Germany has long lagged the US when it comes to corporate governance and transparency. German CEOs, for example, are not required to publish their compensation until 2006. Even then, shareholders can override the law and vote to keep them secret. Only the total executive pay for a group of top managers must be revealed. Shareholders of German companies have long been left to guess how much the top dog earned — and had no leverage over pay packages for poorly performing CEOs.

That allowed CEOs who destroyed shareholder value, such as Zetsche’s predecessor Juergen Schrempp, to hide behind a pay smokescreen year after year and dodge accountability. Fund managers fumed helplessly as the overall pay for Schrempp and his top team grew by multiples despite a dismal performance.

Zetsche’s message is clear: DaimlerChrysler is becoming a transparent company that adheres to best corporate governance practices in both word and deed. Schrempp promised shareholders a new style German company and failed to deliver. He hid from the Anglo Saxon press — not granting Business Week a single interview in three years — and blamed poor results on the market while his German rivals prospered under the same conditions. No more. Performance is what counts under Zetsche. He knows that executives who deliver strong growth and profits have no need to fear shareholder backlash on compensation. It’s the slouches who have to worry now.

That not only a refreshing change for shareholders. It’s the mark of a well-managed company. Add up all the changes since Zetsche returned to Stuttgart in September as head of Mercedes and its clear he’s eager to transform a hidebound DaimlerChrysler into a model of good management. Last fall when Mercedes cut 8,500 jobs, he announced the news in front of factory workers. That was the first time a CEO at Daimler had the courage to explain bad news to workers face-to-face in the past 10 years. Zetsche’s openness and honest engagement with the media is a dramatic reversal from Schrempp’s strategy of no access to management and heavy-handed spin-control. Business Week published its first interview with the new CEO on Jan. 5.

Last week, Zetsche took another whack at old structures with the dramatic downsizing of a pampered headquarters elite. Straight-shooter Zetsche is the perfect antidote to years of management aloofness and lack of accountability. I bet he will earn his pay several times over.

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