(FORTUNE Magazine) -- The headline in London's Evening Standard in March, after BP reported that CEO John Browne's 2005 salary and bonus had hit $5.7 million, blared "OIL GIANTS' BOSSES LAND PAY BONANZA."

In Germany, Deutsche Bank CEO Josef Ackermann has faced protests from shareholders and demonstrators for taking a 19% pay hike while laying off employees.

But despite the public outrage, European CEOs have never had it so good.

Though pay levels remain far below the stratospheric figures in the U.S., the compensation of top executives in Europe set new records last year.

For the second year in a row, Lindsay Owen-Jones, who stepped down as CEO of French cosmetics giant L'Oréal in April, is atop FORTUNE's list of the 25 highest-paid European CEOs and chairmen. Owen-Jones received $32 million in 2005, a 9% increase over the previous year.

No. 2 Daniel Vasella, CEO of Novartis, saw his compensation jump 213%, to $20 million. And Henri de Castries, chairman of French insurance company AXA and No. 3 on the list, got a 52% pay hike, bringing his total compensation to $13.8 million.

On average the top 25 CEOs booked 7% more in 2005 than they did the previous year.

That won't be anywhere near enough to close the gap between Europe, where CEOs make about 25 times the average salary of their employees, and the U.S., where the ratio is more than 100 to one. A recent study by the U.S. Federal Reserve Board puts the average compensation of the top 25% of American CEOs at $9 million, including long-term incentive plans.

The FORTUNE survey was conducted by London research firm BoardEx, which calculated total direct remuneration for 2005 based on salary, bonus, options, and other perks reported by all the publicly traded European companies on last year's FORTUNE Global 500 list.

The ranking does not take into account pensions, long-term incentive plans, or other performance-based compensation.

With the exception of Owen-Jones, who received stock options valued at more than $23 million, experts say the largest increase in European pay is coming in the form of performance-related compensation.

"Shareholders say we don't mind giving you the potential for large amounts," says Richard Lamptey, a compensation consultant for Mercer Human Resource Consulting in London. "But we want to see more of it at risk."

BP's Browne is a good example of this trend.

The share of his 2005 compensation made up by salary, bonus, and stock options dropped by 59%, while his long-term incentive pay (not counted in our rankings) increased by 71%, to $21.5 million.

Novartis's Vasella took the majority of his 2005 pay in the form of options, and a smaller amount than usual, just 11%, in salary. (He also got another $11 million in long-term performance-based incentives.)

Novartis shareholders complained about Vasella's $12.4 million pay package in 2003, and the following year his compensation, not including long-term incentives, dropped by $6 million. But in 2005 it jumped back up to $19.9 million.

"Once you are beyond a threshold," the Novartis CEO says, "more or less does not make a difference." What does matter, he says, is linking extraordinary pay to extraordinary performance. (Novartis's net income was up 9.6% in 2005 over the previous year.)

Vasella also says that greater disclosure of executive compensation has made the pay issue only thornier.

"Transparency has not contained executive compensation," he says. "People now say, 'XYZ has earned so much, why should I accept less?' "

That kind of salary envy means that compensation inflation in Europe is unlikely to flag anytime soon. And that leaves lots of people trying to figure out what to do about it.

The Swiss are debating a law that would give shareholders the right to approve executive pay packages.

Britain already gives shareholders an advisory role in setting compensation levels.

But Vasella says shareholders cannot possibly understand the intricacies of management well enough to make such decisions, and he worries that the debate could encourage executives to leave public companies and take jobs with privately held ones, where they are free to earn without scrutiny.

Mercer's Lamptey says CEOs are already looking to do just that to avoid the controversy over pay. "They're asking, 'Do I need this?' " he says. Much of the public, in the meantime, would be happy to answer that question for them.

The data for this table were compiled by BoardEx, a British research firm. The list includes CEOs and chairmen from FORTUNE Global 500 companies based in Europe that published annual reports or made regulatory filings by June 1, 2006. Total compensation includes salary, bonuses, remuneration for travel and relocation costs, shares, and share options (valued by the Black- Scholes model). The exchange rate is the historical rate for the end of the company's fiscal year, in most cases Dec. 31, 2005.