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Major Investor Chides VW Over “Huge Sums” Paid In Bonuses, Salaries

TCI Management has chided Volkswagen over the salaries and bonuses paid to the automaker's executives, suggesting that execs be paid bonuses in stocks so they can see how the market regards their performance.
Posted: September 23, 2016 - 9:58AM
Author: Marc Stern

A major Volkswagen investor, whose history of disputes with corporate boards is well known, has taken the automaker to task, this time for the excessive “sums” paid to its executives. In a letter seen by Reuters, TCI Fund Management told the automaker to cut the “huge sums of money” paid to executives.

Further, Chris Hohn, the maverick billionaire who heads the fund, suggested that any bonuses be paid in shares of the automaker, not cash.

Second Time VW Chided

Hohn’s letter is the second time in the last four months that he has weighed in on the VW’s executive compensation practices. Last May, he demanded that the automaker make cuts after the VW aid its top 12 managers a combined total of 63 million euros or $71 million, despite a record loss caused by the company’s admission that it had cheated on diesel emissions testing.

Hohn’s latest letter calls for an overhaul of the system which rewarded managers with “huge sums of money” if the company earned over 5 billion euros – about $5.6 billion – before interest and tax. “This is obviously wrong,” the Hohn chided the automaker in the letter dated Sept. 7.

Hohn said any new pay plans should:

• Be transparent
• Be easily measurable
• Mean no bonuses for poor performance

Volkswagen responded with a statement that indicated it was working on a new executive compensation plan for the 2017 financial year. The new scheme, the automaker said, would include ideas from market participants.

Ben Walker, a partner in TCI, told Reuters separately that management “must own a lot of stock, so they are aligned with shareholders.” He indicated that their message was that all bonuses should be paid in stock which should vest in three to five years.

Echoed Concerns Of Investors

TCI’s sentiments voiced the concerns of other major investors in the automaker who questioned the millions in bonuses that were voted for executives despite the fact that the carmaker admitted it had cheated on its emissions testing by using a “defeat switch” to game the system.

The “switch” looked for telltales that indicated testing was underway and turned on the system so that vehicles appeared to pass, even though they were failing. The failing cars emitted up to 40 times the allowable levels of NOx emissions. Within days of the cheating admission, VW’s stock had tanked by 35 percent, costing investors billions of euros.