HANDELSBLATT EXCLUSIVE VW Moves to Cap Executive Salaries

The German automaker plans to impose a compensation cap of €10 million on board members amid public outcry over large bonuses being paid out in the wake of the diesel emissions scandal.
Quelle: dpa
Even Social Democrats can't say no. Christine Hohmann-Dennhardt received a €13-million package from VW after serving as its legal chief.
(Source: dpa)

After years of resistance, Volkswagen is finally giving into mounting public pressure to reign in lavish compensation packages for its executive board members.

The automaker’s supervisory board plans to cap executive compensation at €10 million, or $10.7 million, according to Handelsblatt sources close to the non-executive board.

The proposal will be discussed at the supervisory board’s meeting on February 24.  If approved, the new cap would go into affect this year and apply to new contracts.

An internal audit commissioned by Mr. Pötsch found that the automaker’s compensation rules were not consistent with the corporate code of conduct.

The supervisory board chairman, Hans Dieter Pötsch, would discuss adjusting existing contracts to the new system with the current executive board members.

Volkswagen has long faced criticism for its lavish compensation system. In 2011, then chief executive Martin Winterkorn received €17 million, making him the best paid business leader in Germany.

Mr. Winterkorn’s compensation package sparked a public debate about how much is too much when it comes to executive pay, but Volkswagen’s generous system remained in place.

The public outcry over multi-million-euro bonuses paid out in the wake of the 2015 diesel emissions scandal proved to be the straw that broke the camel’s back.

“The kind of discussion that we had a year ago shouldn’t happen again,” a VW manager told Handelsblatt on condition of anonymity.

An internal audit commissioned by Mr. Pötsch found that the automaker’s compensation rules were not consistent with the corporate code of conduct.

Under the new system, executives would receive a higher fixed salary and smaller bonuses, company sources said. In recent years, bonuses have been four times higher than fixed compensation.

Executives would also invest a portion of their money in company stock which wouldn’t be redeemable for several years, giving them a greater personal stake in the company’s performance.

In addition, bonuses would be tied to dividends and VW's stock price, sources said, so that the consequences of a bad year would also be reflected in executive pay.

If this system had been in place in 2015, executives would have received much smaller bonuses in the wake of the diesel emissions scandal, a VW manager said.

The federal state of Lower Saxony, which has a 20-percent stake in VW, is expected to push hard for a reduction in executive compensation at the supervisory board meeting this month.

The automaker confirmed that it’s re-working its compensation system, but a spokesman declined to comment on the details.

The federal state of Lower Saxony, which has a 20-percent stake in VW, is expected to push hard for a reduction in executive compensation at the supervisory board meeting this month.

Lower Saxony’s premier, Stephan Weil, and the state’s economics minister, Olaf Lies, have seats on VW’s  non-executive board.

Both men are center-left Social Democrats and their party has made corporate bonuses a campaign issue as federal elections approach in September 2017.

The party’s newly minted chancellor candidate, Marin Schulz, criticized lavish executive compensation in one of his first speeches on the campaign trail.

Mr. Schulz was put on the defensive over the weekend when his party colleague, Christine Hohmann-Dennhardt, received a €13 million severance package from VW after serving as the automaker’s legal chief for only a year. Ms. Hohmann-Dennhardt previously served as the justice minister in Hessen.

“I say in all clarity that I have a hard time living with that,” Mr. Schulz said of her serverance package.

VW, however, needs an attractive compensation system to attract the best talent from around the world, sources close the supervisory board told Handelsblatt. A €10-million cap should do, the sources said.

The automaker’s human resources chief, Karlheinz Blessing, is examining to what degree the new rules should apply after 2018 to managers who receive bonuses but are not on the executive board.

For most managers, nothing will change, a company source said. Those in very senior positions, however, could be affected by the rules change.

 

Martin Murphy is a Handelsblatt correspondent covering the car industry. To contact the author: [email protected]