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SAP Chiefs Say Current Spending Levels Could Affect Bonuses

SAP AG Co-CEO Jim Hagemann Snabe
“For the rest of 2012, this means optimizing effectiveness at our current cost level and avoiding additional expense growth,” co-Chief Executive Officers Jim Hagemann Snabe and Bill McDermott wrote in an internal letter to staff following the publication of the results. Photographer: Chris Ratcliffe/Bloomberg

July 13 (Bloomberg) -- SAP AG, the biggest maker of business-management software, told employees that their bonuses are at risk if the company doesn’t manage to reduce expenses after reporting profit that grew more slowly than sales.

The operating margin, based on non-IFRS accounting standards, fell 0.8 percentage points to 30 percent in the second quarter from a year earlier, the Walldorf, Germany-based company said yesterday. Profit was trimmed by the acquisition of SuccessFactors Inc. and an increase in employees by about 5,200, or almost 10 percent, over the first six months.

“For the rest of 2012, this means optimizing effectiveness at our current cost level and avoiding additional expense growth,” co-Chief Executive Officers Jim Hagemann Snabe and Bill McDermott wrote in an internal letter to staff following the publication of the results. “This will allow us to reach our internal goals for the year, as a continuation of the current spending levels could affect our bonus payout.”

Snabe’s and McDermott’s pay was raised by more than 40 percent each for 2011, and both received 950,000 euros ($1.2 million) in share-based bonuses for both 2010 and 2011. SAP paid shareholders a record dividend of 1.10 euros for last year, and the company has earmarked 460 million euros to 500 million euros for a bonus program that allows all employees to tie a part of their compensation to the share price.

The company is also spending to get more customers to adopt new products. In April, SAP said it would spend almost $500 million to entice clients to adopt its in-memory Hana database-management software, develop new applications based on the technology and challenge Oracle Corp.’s dominance in the database business.

SAP announced the hiring of Luisa Deplazes Delgado as its new head of personnel yesterday, after lacking a full-time chief of human resources for a year following the departure of Angelika Dammann.

German magazine WirtschaftsWoche reported the contents of SAP’s internal letter earlier today.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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