VW Said to Rein in Executive Pay as Germany Targets Bonuses

  • Supervisory board to vote on revised remuneration on Feb. 24
  • VW faces criticism from investors, politicians over payouts

Volkswagen AG is considering a cap on pay for top executives, reacting to criticism in the wake of the diesel-cheating scandal as political pressure grows ahead of German elections later this year.

The supervisory board at VW, which is partially state owned, plans to vote on Feb. 24 on a revised compensation system geared more to share performance than the company’s results, according to people familiar with the matter. As part of the proposal, remuneration for the chief executive officer would be capped at 10 million euros ($10.7 million) and limits would be placed on compensation for other management-board members as well, said the people, who asked not to be identified because the plan has not yet been approved.

Talks haven’t been finalized as it’s unclear to what extent the contracts of current board members can be adapted. That might mean that the changes will only apply as new members join the board, according to the people. Handelsblatt reported on the compensation changes earlier.

Volkswagen’s generous management pay came under fire in the aftermath of the emission-cheating scandal, which triggered more than 20 billion euros in damages. Former VW Chief Executive Officer Martin Winterkorn, who was forced out after the crisis erupted in September 2015, was Germany’s best-paid executive for years as the company raked in record profits. The opulent pay was backed by the government of the German state of Lower Saxony, VW’s second-largest shareholder, as well as labor leaders. Outside investors effectively had no say as the majority of the manufacturer’s voting stock is controlled by Lower Saxony and members of the Porsche-Piech family.

Generous Compensation

VW has been working for months on a new remuneration system, the company said, declining to comment on the status of the plan.

Even with the emissions-cheating scandal raging in 2015, VW was extremely generous toward top executives, paying 63.2 million euros to 12 management-board members, according to its annual report. By contrast, German peer Daimler AG paid its nine top managers 37.3 million euros that year, while BMW AG’s management board earned 34.8 million euros.

VW’s payouts have prompted calls for change from the country’s politicians as Germany heads for federal election in September. Volker Kauder, Chancellor Angela Merkel’s caucus leader in the lower house, has lashed out at VW for slashing jobs while at the same time signing off on management bonuses. New rules from Germany’s financial regulator will take effect next month that allow for the clawback of executive bonuses in the case of losses from mismanagement.

Board Reshuffle

VW had started reining in remuneration amid a board reshuffle that was triggered by the scandal. The only board member who earned more than the planned 10 million-euro threshold in 2015 was trucks chief Andreas Renschler, who made 15.6 million euros, which included compensation for giving up his previous post at Daimler.

The abrupt departure last month of VW’s compliance chief, Christine Hohmann-Dennhardt, included a payout of around 13 million euros after just one year on the job, according to people familiar with the matter. Matthias Mueller, who succeeded Winterkorn as CEO, was paid for 4.76 million euros in 2015.

“An overhaul of executive compensation, alongside a competitive financial target system, are of utmost importance in order to restore confidence in management and deal with some of the shortcomings in VW’s corporate governance,” Arndt Ellinghorst, an analyst with Evercore ISI, said in a note. The diesel crisis and other scandals in the past “all come down to the same issue: management targets and accountability.”

— With assistance by Birgit Jennen

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