Exit Bonuses for Management Board Members of German Stock Corporations: Legal Framework for Adequate Incentivisation by Financial Investors

705The alignment of interests between managers and owners has always been a central topic of the European and international corporate governance discussion. For financial investors, who are frequently engaged in the business of buying and selling participations and companies, a key instrument to ensure such alignment is adequate incentivisation of managers through compensation. As these investors typically realise the most significant part of their return when they exit an investment through a sale, it seems obvious for them to seek remuneration structures that link the amount of compensation to the success of an exit transaction. In particular, the amount of a distinct bonus payment by the company can be linked to the return achieved by the investor through the exit from the investment (exit bonus). In this paper, we explore the legal permissibility of such exit bonus structures if they are part of the remuneration system for management board members, including structures with a personal investment component and exit bonuses directly paid by the investor. The analysis focuses on German stock corporations (AG) with a two-tier governance structure. In this context, we also analyse to what extent members of the supervisory board can be exposed to conflicts of interest (or even personal liability) in approving such bonus schemes. As a successful exit mainly depends on a high valuation of the company from a long-term perspective, our analysis shows that exit-related bonus structures primarily incentivise managers to advance the long-term interests of the company. The key arguments underlying this analysis are of general nature and are also relevant for other legal corporate forms and jurisdictions.