The proposed reform by the German federal government to loosen dismissal protection for top earners and high-paid executives has sparked a lively debate. The reform aims to make Germany more flexible and attractive for international investors and corporations. But how does Germany truly compare internationally regarding termination costs for executives?
International Comparison: Termination Costs in Months of Salary
Based on data from the CMS Guide to Dismissal and national labor law sources, we compared the average total termination costs (severance pay and notice period in months of salary) for an executive with a €200,000 gross annual salary and 5 years of service. The results show significant differences across countries:
- Italy (~20 months) and Japan (~15 months) lead the list as the most expensive countries for executive departures. In Italy, strong collective bargaining agreements (CCNL) create high barriers, while Japan’s abuse of dismissal rights doctrine strongly protects employees from unilateral terminations.
- Germany (~7 months) sits in the upper-middle range. This typically consists of a notice period of 3 to 6 months combined with a customary severance settlement.
- United Kingdom (~3 months) and Singapore (~4 months) offer employers significantly more flexibility and lower statutory minimum costs.
- China (~2.3 months) caps statutory severance pay strictly for high earners, making separations in this compensation bracket surprisingly cost-effective.
Termination Protection: Market Friction or Essential Shield?
The debate centers around a key tension:
- The Argument for Loosening: Rigid dismissal protection can deter companies from hiring top-level talent or executing necessary strategic changes. When senior seats are blocked by highly protected executives, the labor market loses mobility, and younger leaders miss out on promotion opportunities.
- The Argument for Protection: Executives in key leadership roles must make bold, long-term strategic decisions. Without a reasonable safety net, they risk immediate termination during short-term setbacks, which can lead to risk-averse management and stunt company innovation.
The proposed German reform attempts to recalibrate this balance. What is your perspective? Does high dismissal protection slow down economic agility, or is it a justified safeguard for top performers? Share your thoughts with us!
