Volkswagen’s top management team has agreed to significant bonus cuts to help quell an incipient revolt of its political and labor allies. Hans Dieter Poetsch, chairman of the VW Group, and other top executives agreed to the cuts yesterday. The decision follows a call by Lower Saxony, a German state that holds 20 percent of the automaker and has two seats on the carmaker’s board, and by labor leaders for the cuts. They called the bonuses excessive as the automaker still faces staggering multi-billion euro losses as the result of VW’s self-inflicted emissions scandal.
In a statement today, VW and its management agreed there needed to be a major signal on pay. At the moment, all the parties are trying a consensus on a plan that would be “fair for everyone.” Whatever the choice, there will still be a “significant reduction of variable [bonus] pay,” the VW statement said.
Though no exact amounts were discussed by the statement, other sources, notably Reuters, said the board has agreed to at least 30 percent bonus cuts. Meanwhile, discussions are continuing concerning whether there would be further trimming beyond the 30 percent. One of the options under study would have executives invest in VW, a source told Reuters. A decision on the size of the bonus cuts will be made on April 22 at the board’s meeting. An overall picture of the pay plans will appear in the company annual report on April 28.
VW’s executives have been under increasing pressure because of their bonuses. Labor and Lower Saxony opposed the levels of remuneration. Of particular interest was the 10 million euros ($11.4 million) promised to Poetsch. He was reportedly offered the bonus for vacating the higher-paying post of chief financial officer.
Showing its support for the move, the market today voted with labor and Lower Saxony by moving VW shares up 4.3 percent to 112.05 euros. The upward movement occurred within the first hour of trading. VW’s stock price, however, is down 31 percent as a result of Dieselgate. Since the automaker’s announcement in September that it had installed cheatware on 11 million diesel vehicles to fool U.S. regulators VW has lost 16 billion or about $17.5 billion in value.
The loss in value is only one aspect of the hit the automaker is taking due to Dieselgate. So far, VW has set aside $6.7 billion to fix the vehicles involved. However, it has admitted in the recent past that this is not likely enough. Further, the U.S. Department of Justice has filed a civil racketeering suit that seeks $46 billion from VW for emissions law violations. In the wings are dozens of consumer lawsuits seeking billions, not to mention the amounts being sought by attorneys general across the U.S. And, there are ongoing criminal probes that have yet to be determined. Some have speculated it will be years before the automaker is out from under the Dieselgate damage.
Reports today indicate that even as the automaker continued to struggle with the increasingly burdensome fallout of the scandal, its executives still enjoyed being among the top paid in the auto industry. For example, in 2014, the management board – nine members – earned a total of 70 million euros, including 54 million euros in so-called variable compensation [bonuses]. In contrast, Daimler paid its top nine executives a total of 37 million euros, including bonuses for record earnings. BMW’s management board members made 35.5 million.
Matthias Mueller, VW chief executive, updated board members at the board’s weekly meeting yesterday. The meeting followed a Monday supervisory board get-together.
The remuneration cut was neither altruistic nor unanimous. According to sources who spoke on condition of anonymity, some executives opposed elimination of their 2015 bonuses to help ease the financial burden of Dieselgate.
Automotive News, Reuters and Bloomberg provided information for this story.
