Eurozone take aim at 'scandalous' executive pay

Italian Economy Minister Giulio Tremonti, left, smiles with Luxembourgian Eurogroup President Jean-Claude Juncker prior to the Eurogroup meeting in Brussels. (AFP)

Corporate fat cats in Europe faced renewed pressure on Wednesday over huge bonuses untied to their performance as soaring inflation and stagnant wages eat into ordinary workers' purchasing power.

Chairman of the Eurogroup of finance ministers, Jean-Claude Juncker, said his colleagues were considering action to clamp down on "scandalous" pay packages for senior executives.

"We believe that the excesses of captains of industries' (pay packages) that we have seen in several countries ... are really quite scandalous and we are continuing to examine what can be done," Juncker told journalists in Brussels late Tuesday.

Describing huge pay packages as a "social scourge," Juncker said ministers from the 15 euro countries were in particular considering plugging loopholes that allow golden hand-shakes to be tax deductible, which is the case in many countries.

Golden hand-shakes, large payments to senior executives when they leave a company, have stirred controversy recently after some corporate heavyweights received such payouts despite leaving their companies in disgrace.

Although the European Commission began looking into excessive executive pay packages four years ago, only a few countries have taken action to tighten tax rules.

The Netherlands has led the way on clamping down on golden hand-shakes, with legislation in preparation to tax such pay-outs at a rate of 30 per cent for people with annual salaries over €500,000, on condition the bonus is greater than the salary.

In France, lawmakers also set last year a €1 million limit ceiling under which golden hand-shakes are tax deductible for companies and stock option rules have also been tightened.

French Finance Minister Christine Lagarde said that the real problem was the opaqueness in which such executive pay arrangements were drafted.

"We want to implement ... transparency in these matters so that actors can take their responsibilities," she said.

However, debate over executive pay has been the most intense in Germany where President Horst Koehler has accused bosses of endangering "social cohesion" with huge pay-outs.

Board members at German car maker Daimler saw their salaries jump 45 per cent in 2007, a year which was marked by the company's controversial sale of Chrysler after failing to stem losses at its former US unit.

At the same time, ordinary German workers have seen their purchasing power fall 3.7 per cent since 2003 due to inflation and meagre wage increases, according to a recent study.

Juncker said huge pay-outs for corporate fat cats made it all the more difficult to justify calls on average workers to exercise wage moderation, especially at a time when they are struggling to cope with soaring inflation.

"People won't understand if we urge them to be moderate in their wage demands ... if we don't also say that it is not acceptable that certain top managers have excessive salaries and also benefit from golden parachutes which don't have any relation to their direct performance," he said.

However, Juncker acknowledged that for a clamp-down to be effective it would have to go beyond the eurozone and include not only countries in the 27 European Union but other nations as well.

"We want the EU to serve as an example to and bring others on board," he said.