• Volkswagen spokesman declines to comment on TCI's letter
  • Diesel scandal triggered biggest annual loss in VW history

Activist investor TCI Fund Management slammed Volkswagen AG for excessive executive pay in light of poor stock performance and bloated costs that hurt earnings even before the diesel-emissions scandal in 2015 that caused the carmaker’s biggest-ever loss.

For more than four years, “the shares and management have been constant disappointments,” TCI founder Chris Hohn wrote in a letter to Volkswagen board members on Friday. "With a new management team in place, we want to express formally what we expect from the company and how management should be paid going forward.” A spokesman for Wolfsburg, Germany-based VW declined to comment.

TCI said it oversees more than $10 billion in assets and has “economic exposure to more than 2 percent” of VW. Ben Walker, a partner at TCI, declined in a phone interview to specify whether London-based TCI controls VW common stock, which carries voting rights. About 89 percent of the voting stock is held by the Porsche and Piech owner families, the German state of Lower Saxony and the emirate of Qatar, which limits the influence of external shareholders.

“We want the company to propose a new incentive system, and we want the target to be 19 billion euros ($21.7 billion) of operating profit,” Walker said. “Until those targets are achieved, we don’t support large management bonuses.”

VW’s preferred stock, its most widely traded security, doesn’t have voting power. Previous calls from outside investors including Norges Bank Investment Management and Union Investment to improve corporate governance haven’t generated a public response from the carmaker.

A dispute over management bonuses shook VW last month after the company’s powerful labor unions and Lower Saxony politicians demanded that board members accept bigger cutbacks to help stem the financial fallout from the scandal. VW’s admission eight months ago that it rigged emission tests for as many as 11 million cars worldwide prompted the company to appoint Matthias Mueller as chief executive officer in place of Martin Winterkorn last year.

“Excessive top management compensation, unlinked to transparent metrics and paid in cash with no vesting or deferral, has encouraged aggressive management behavior, contributing to the diesel emission scandal," Hohn said in the letter.

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