ZEW President Franz on Morality and the Compensation of Top Managers


This article appeared in the October edition of the ZEWnews.

Preaching about moral behaviour is one thing, but living morally another, as famous philosopher Arthur Schopenhauer intimated with his work. He knew what he was going on about, especially when it came to morality in business life. Morality and taxes as well as morality and compensations of managers are currently the most talked about topics, and not just for regulars in the know.

The publicly owned football club Borussia Dortmund, for example, recently put a strain on the moral standards of broad sections of the population, including members of the federal government, when it became known that highly paid football players were entitled to tax-free allowances for Sunday and holiday work at the club. Up and down the country there was an outcry about this moral derailment. An outcry? The use of tax benefits, which legality nobody denies, has absolutely nothing to do with morality. The justification for a tax exemption of wage surcharges for weekend and holiday work may be doubted with good reason, but as long as it’s legal in the state i.e. available for citizens to utilize - without income limits, mind you - the head of finance of Borussia Dortmund would be grossly violating his duties if he were to withhold this tax savings model from players in his own club. Ought we not instead to praise the man for his ingenuity? Nonetheless, a proposal for the Federal Minister of Finance in order to make good on the situation: the tax exemption only applies to the year in which the Bundesliga club in question is a German Champion.

The soul of the people is quite easily enraged when it comes to the remuneration of top managers. The devastating verdict of "immoral" is completely certain for most people when the comparatively modest merits of the self-sacrificing nurse serve as contrast. Strangely enough, the more than respectable incomes of the top executives of international football or the entertainment industry are noted with cheerful composure. And as for how steadfast a moral indignation about the salaries of the top earners really proves to be, one would probably only find out if the self-proclaimed judges were offered a comparable amount of moral remuneration.

Discussions about the "just wage" have a long tradition, and treatises on it are legion. Experience teaches that someone who claims such a thing for himself simply desires more money. Whatever the case may be, the well-intentioned proposals to limit top merits in some form are largely ineffectual when top performances are better rewarded elsewhere anyways. Apparently, these are worth all that much more to the respective employer -- otherwise he would not pay them so highly, not even as a spectator of a football match with David Beckham and the corresponding entrance fees.

To be sure, morality is most likely to come into play if there is deception, embezzlement, or fraud. But the assessment of such facts - if they really exist - must be made on the basis of the Criminal Code, which of course is based on certain moral concepts about what one may and may not do. In principle, the potential fine in question does not play a main role; they actually start at one Euro, strictly speaking. Whether an employee at his company falsifies the travel expense statement or the Board of Management falsifies the balance sheet in their favour only has a different effect when the role model function of his superiors is taken into account, even if the employee is to be met with greater sympathy. After all, "morality is simply the attitude we adopt towards people whom we personally dislike" (Oscar Wilde).