Salary Dispute SAP Scrapes Past Embarrassment

SAP's board has narrowly escaped losing a vote of confidence from angry shareholder. The company's chairman staunchly defended the DAX's highest-paid executives.
Quelle: dpa
SAP co-founder and chairman Hasso Plattner spent the day defending Germany's highest paid executives.
(Source: dpa)

Hasso Plattner knew that Wednesday wasn't going to be an easy day. The chairman and co-founder of software giant SAP was forced to defend his company's extraordinary rate of executive pay in front of disgruntled shareholders. In the end, the board narrowly passed a critical vote of confidence, allowing executives to scrape past a fresh public humiliation.

SAP has significantly altered its compensation model for top management in recent years and in 2016 the executive board's pay hit €43.4 million, three times the amount it received in 2015. With that, Chief Executive Bill McDermott became the most highly paid German DAX executive, with his total compensation package totalling roughly €14 million. Shareholders have been up in arms about pay ever since, arguing that the supervisory board led by Mr. Plattner should have rejected the pay package.

Mr. Plattner, ahead of the annual general meeting, had little understanding for his disapproving shareholders, telling Handelsblatt in an interview that he did not understand why the board is coming under fire. “I believe we did everything right in terms of the board’s supervisory duty,” he said.

Yet pressure from major shareholder groups had a visible effect: the software giant's supervisory board won a confidence vote with a mere 50.49 percent approval rate, coming within a whisker of embarrassment. German supervisory board's actions usually get confirmed with a 90-percent approval rating.

SAP is a flagship of the German economy. For that reason, it’s particularly unfortunate that the supervisory board ignored the doubts raised by investors at the shareholders’ meeting in 2016. Hans-Christoph Hirt, Hermes

Major shareholders including British investor advisory service Hermes and German fund Union Investment withheld their support, arguing the board did not have a mandate to raise salary levels the way it did. The influential Institutional Shareholder Services (ISS) group had also recommended its clients oppose the board in Wednesday's vote.

“SAP is a flagship of the German economy. For that reason, it’s particularly unfortunate that the supervisory board ignored the doubts raised by investors at the shareholders’ meeting in 2016,” Hans-Christoph Hirt, co-head of Hermes, told Handelsblatt.

But Mr. Plattner said the raise was justified: “The investors forget that we have a system in place that is strongly geared toward long term success. If share prices increase, compensation increases, too,” he said.

SAP now has a market value of €115 billion and delivered share-price growth of 38 percent in 2016.

Mr. Plattner, who himself owns a 7-percent stake in the company, said that if Mr. McDermott reaches his maximum pay of roughly €41 million, shareholders would have won out too. The company is, in other words, copying executive pay structures.

But shareholders are preparing for more clashes with Mr. Plattner in future. They are furious that he has not spoken directly to them about pay. Mr. Plattner, for his part, insisted that “I can’t discuss it with every individual investor.”

Ingo Speich, fund manager at Union Investment said that markets wanted to see “a clear succession plan” for the 73-year old Mr. Plattner, whose contract is due to end in 2019. Hans-Martin Buhlmann from Bonn’s Association of Institutional Shareholders also said that he “ would strongly recommend to SAP that they find at least one potential successor for Mr. Plattner on the supervisory board.”

But Mr. Plattner, one of SAP’s founders, sees no reason to quit anytime soon. “At the moment, there are no thoughts of stepping down, and there’s no reason to do so,” he said.

 

Christof Kerkmann is an editor for Handelsblatt and writes about the technology sector. Grischa Brower-Rabinowitsch leads Handelsblatt's coverage of companies and markets. To contact the authors: [email protected] and [email protected] .