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Daimler Cuts Executives’ Pay After Earnings Plan Scrapped

Daimler AG (DAI) cut Chief Executive Officer Dieter Zetsche’s pay 5.8 percent amid a reduction in managers’ bonuses as the world’s third-biggest maker of luxury cars fell behind competitors in sales and dropped profit goals.

Zetsche’s compensation for 2012 totaled 8.15 million euros ($10.9 million) compared with 8.65 million euros a year earlier, the Stuttgart, Germany-based manufacturer of Mercedes-Benz cars said today in its annual report. Daimler also scaled back the combined annual bonus for the management board by 28 percent.

Daimler, which scrapped an earnings target for 2013 in October, prolonged Zetsche’s contract for three years on Feb. 21. The term is shorter than the five years won by other CEOs in German industry, including Norbert Reithofer, head of Bayerische Motoren Werke AG. (BMW) Zetsche, 59, is under pressure to renew an aging Mercedes model line, which lost ground in deliveries last year to BMW and Volkswagen AG (VOW)’s Audi luxury brand.

“Over the next three years, Zetsche has to lead improvements to regain the leading role” among luxury carmakers that Mercedes lost to BMW in 2005, Marc-Rene Tonn, a Hamburg- based analyst with Warburg Research, said by phone.

Job Switch

Zetsche’s contract as Daimler’s group CEO and head of Mercedes-Benz was extended to the end of 2016 on Feb. 21. That’s the year that current terms end for BMW’s Reithofer and VW chief Martin Winterkorn. Daimler also said that Andreas Renschler, its current head of the truckmaking unit, will swap responsibilities with Wolfgang Bernhard, who runs production and purchasing at the Mercedes car division, as of April.

The carmaker abandoned plans to give Zetsche a five-year term after investment funds voiced concerns over the length, said a person familiar with the matter who declined to be identified as the discussions weren’t public.

Daimler also had to win over labor leaders to get the contract approved and works council board members pushed through the job swap between Bernhard and Renschler as part of the deal in order to work directly with Renschler on a reorganization under way at the car unit, another person said.

There has been growing concern at the works council at a lack of input from labor leaders on planned cost-cutting measures at the car division, the person said. Solutions to restructure the trucks unit under Renschler have always been found through negotiations between the company and labor representatives, that person said. Daimler and works council officials declined to comment.

Savings Program

Daimler laid out plans in October to lower costs at its passenger-car division by 2 billion euros by the end of 2014. The trucking unit outlined a strategy in June to defend its global leadership while increasing earnings by 1.6 billion euros, also by the end of next year.

The supervisory board set Zetsche’s term to follow corporate governance rules, which “imply” that executives who are already 60 or would soon cross that age threshold get a contract extension of three years instead of five, Joerg Howe, a Daimler spokesman, said on Feb. 21.

Der Spiegel magazine reported on Daimler supervisory board talks on Zetsche’s contract in its edition appearing today.

Daimler rose as much as 3.3 percent to 46.06 euros, the highest intraday price since April 3, and was trading up 2.1 percent at 4:24 p.m. in Frankfurt. The stock has gained 10 percent this year, valuing the company at 48.6 billion euros.

2013 Forecast

The carmaker, hampered by a disjointed sales strategy in China and costs for expanding its model lineup, reported a 2 percent drop in earnings before interest and taxes to 8.62 billion euros for 2012. The Mercedes car unit’s operating margin narrowed to 7.1 percent of revenue from 9 percent a year earlier. Excluding one-time gains or costs, Ebit in 2013 will probably match the 8.1 billion euros posted last year, Daimler said on Feb. 7.

The manufacturer is combining sales organizations in China for locally produced and imported cars into one entity and it added Hubertus Troska, a former truck-unit manager, to the management board in December to look after Chinese operations.

“The changes that are being implemented in China now won’t have a larger impact before sometime in 2015,” Warburg’s Tonn said.

Zetsche’s pay cut is the second announced by a German auto manufacturer for top management for 2012. VW, Europe’s biggest carmaker, said on Feb. 22 that CEO Martin Winterkorn will receive 17 percent less compensation.

VW’s Pay

VW forecast on Feb. 22 that Ebit this year will equal the 11.5 billion euros reported in 2012, the first time since 2009 that annual operating profit would fail to rise. The Wolfsburg- based company revised compensation calculations for its management board members, cutting their combined pay 20 percent for 2012, by basing bonuses on a minimum operating profit of 5 billion euros and limiting long-term incentive payments to 50 percent of bonuses.

Zetsche’s total remuneration comprised a base salary of 2 million euros, unchanged from a year earlier, a short-term bonus of 1.43 million euros, a medium-term bonus of the same amount, which depends on the performance of Daimler shares and which will be paid next year, and long-term variable compensation which includes stock options. The short-term bonus for the entire eight-member board was cut to 4.65 million euros from 6.44 million euros a year earlier.

Renschler’s total compensation declined 3.2 percent to 3.29 million euros, and Bernhard’s was reduced 4.6 percent to 3.05 million euros. Chief Financial Officer Bodo Uebber’s remuneration fell 3.8 percent to 3.54 million euros.

Christine Hohmann-Dennhardt, who is responsible for compliance and legal affairs, earned more in 2012 than a year earlier as she didn’t serve a full term in 2011.

To contact the reporter on this story: Dorothee Tschampa in Frankfurt at dtschampa@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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