HAMBURG/BERLIN (Reuters) - Volkswagen’s (VOWG_p.DE) top management board has agreed to cut executives’ bonus payments by at least 30 percent, one person familiar with VW’s bonus negotiations said, as the carmaker struggles to resolve a dispute over compensation.
Bonuses for senior managers have become a flashpoint in an escalating dispute with the powerful labour leaders of Europe’s biggest carmaker, which is under pressure to cut costs since an emissions scandal broke in September when U.S. regulators said they were investigating VW for violating clean air rules.
Volkswagen’s (VW) second-largest shareholder, the German state of Lower Saxony, wants management bonuses to be scrapped while VW’s powerful labour leaders have been pushing for no or lower bonuses, sources familiar with the matter said.
“These are tough times and VW must send a signal also to workers that it’s serious about cost cuts,” M.M. Warburg analyst Marc-Rene Tonn, who recommends holding the stock, said, adding VW needs to make “structural changes” to executive compensation rules.
VW shares closed 4.4 percent higher, outperforming the 2.7 percent gain in Germany's blue-chip index DAX .GDAXI.
Lower Saxony Prime Minister Stephan Weil said “intense” discussions on the board were still needed to find a solution on bonuses. Lower Saxony holds a 20 percent stake in VW and has two seats on its supervisory board which signs off on executive pay.
Earlier on Wednesday, VW confirmed a Reuters report that its management and supervisory boards had agreed to bring about a significant reduction in executive bonuses.
Volkswagen, however, dismissed as wrong a report by a group of German media outlets that the company’s executive board members had offered to have their bonuses slashed by 50 percent.
German broadcasters WDR and NDR as well as newspaper Sueddeutsche Zeitung, which worked together on the story, cited unnamed top executives as saying that under the proposal some part of the relinquished bonus payments would be set aside for future payouts that depended on business development.
Executive bonuses in 2014 accounted for 54 million euros ($61 million) of the 70 million euros in total compensation for VW top managers, according to company data. That’s almost double the 37 million euros rival Daimler (DAIGn.DE) paid its top managers in fixed and flexible salaries last year.
“From our perspective, it’s undisputed that no bonuses should be dispensed to executives and senior managers” for as long as the emissions scandal has not been fully cleared up, the SdK capital investors’ lobby, which represents shareholders’ voting rights in listed German companies, said.
U.S. law firm Jones Day, hired by VW to investigate the scandal, is due to brief the supervisory board on its findings on April 22.
Though top managers are resisting scrapping bonuses, they are discussing further measures for an additional reduction in variable pay, the person familiar with VW’s bonus negotiations told Reuters on Wednesday, without being more specific.
VW declined to comment. VW’s works council did not return calls seeking comment.
The person also said one option may be VW executives investing in the carmaker, without being more specific. VW’s supervisory board is scheduled to sign off on 2015 results and executive compensation on April 22.
Reporting by Jan Schwartz and Andreas Cremer; Additional reporting by Ludwig Burger; Editing by Elaine Hardcastle, Susan Thomas and Mark Potter