The arrival of General Electric Co. boss Jack Welch in a nonexecutive role on Fiat S.p.A.'s board shows European automakers are getting serious about shareholder value.
During more than 18 years at the top of GE, Welch has created a leadership legend, proving a corporation can be at once huge, nimble and profitable. Welch is regarded as the ultimate manager and an executive who also has dedicated considerable GE resources to training future managers.
Welch joins Fiat Chairman Paolo Fresco on a board committee with responsibility for personnel and executive compensation, a key issue in the shareholder-value equation. The two worked together when Fresco was Welch's deputy at GE.
European automakers have been paying closer attention to shareholder-value issues, particularly since the 1998 merger that created DaimlerChrysler.
THE AMERICAN WAY
That merger further exposed the European industry to American-style business practices, including highly lucrative American executive pay packages. Top American executives generally are paid more than their European counterparts, and those pay packages are tied closely to the performance of a company's stock.
DaimlerChrysler, for example, has proposed a new pay plan for about 120 top executives. The company will implement a share-option plan next year, after the executives adopt a proxy plan this year using phantom shares.
Fiat, following the lead of other makers, introduced a share-option plan for about 700 top executives in January to 'further involve and motivate' executives, Fresco said.
But the incentives remain small compared with lavish share-option programs among U.S. companies, including General Motors and Ford Motor Co. In most European companies where stock options are issued, they are only one part of top executive pay and far from dominant.
Analysts say shareholder value has become more important to European companies for a variety of reasons. 'Having a decent share price is very much a part of working effectively in an industry environment where mergers are going on,' said John Lawson, analyst for SalomonSmithBarney in London.
CHANGE IN ATTITUDE
Robert Speed, London-based analyst for Commerzbank, said traditional European business practices have not placed the same priority on shareholder value as those in North America.
For example, 'German accounting is completely at odds with running a business for maximum public returns,' he said. 'The German accounting system is so incredibly conservative.'
Eckhard Zanger, spokesman for DaimlerChrysler, said the arrival of Juergen Schrempp and his management team at the former Daimler-Benz AG in 1995 signaled the beginning of a change in attitude.
Not only have performance-based incentives become more widespread, but Daimler-Benz adopted American style accounting procedures in 1996, he said.
Zanger said Schrempp has been able to instill a shareholder-value culture at DaimlerChrysler by changing traditional German worker perceptions that increasing profits means decreasing jobs.