Volkswagen's executive pay packages remain untroubled by emissions scandal
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Version 0 of 1. If you think pay in top boardrooms in the UK has reached insane levels, try Germany, and specifically Volkswagen. After the huge emissions scandal, which could end up costing the firm a few tens of billions of dollars, the car maker’s supervisory board thought hard about pay and decided to carry on almost as if nothing had happened. Actually, that’s too generous. VW’s remuneration report reveals little evidence of any debate. The only glancing reference to the scandal is when the board says it accepted last week’s offer by management to withhold 30% of their performance-related pay. No explanation is offered for why 30% – and not 100% – was deemed appropriate. Add it all up and the VW board is barely less expensive than in 2014, when the company was still regarded as a beacon of engineering excellence. The 2015 tally was €63m; the previous year’s was €70m. Martin Winterkorn – the chief executive who resigned and thus “took responsibility for the irregularities” – got a €9.3m termination payment on top of a bonus-heavy €7.3m pay package. This is staggering when you remember that VW hasn’t even explained yet how 11m of its cars came to be fitted with cheat devices. The much-delayed report is still delayed. In the meantime, shareholders are offered morsels about “a group of persons whose identity is still being determined” modifying software. Should the highly paid management have known what was under the bonnet? That crucial question is ignored. Even when the US clean transportation agency raised questions in May 2014 – more than a year before the scandal broke – VW reports that discrepancies were regarded as “a technical problem that did not basically differ from other everyday technical problems at an automotive company”. Is that supposed to excuse inaction? Governance at public companies in the UK is riddled with complacency and conflicts of interest but it is hard to believe a FTSE 100 company, in similar circumstances, would get away with a remuneration report as supine as Volkswagen’s. Even some banking bosses were obliged to surrender their bonuses occasionally as their share prices crashed. At Volkswagen, it seems, restoring trust – the stock phrase that has trotted out since last September – means preserving boardroom pay. Weir Group’s gamble on remuneration fails to pay off What Volkswagen needs is some shareholders like Weir Group’s. A 72% vote against a pay policy sends a suitably robust message. This is a rare example of a board losing a binding vote on a forward-looking policy. Weirdly, however, it is possible to have an ounce of sympathy for Weir. Its pay committee seems to have recognised that standard long-term incentive plans, or LTIPs, often turn out to be farcical. They can end up rewarding mediocrity and rely heavily on chance factors, like competitors failing or the oil price rising. In place of an LTIP, Weir opted for “restricted stock” – essentially, just handing the executives a pile of shares and inviting them to maximise the value. It’s how the American companies do it, and Weir argued it hires a lot of Americans for its operations there. The problem with restricted stock, of course, is that they come with no performance conditions attached. The only safeguard against rewarding failure is the willingness of the pay committee to apply common sense. That ingredient seems to have enraged UK shareholders, who have sent a clear message that they do not want an import from the US. But what do they want? The Investment Association, representing £5.5tn of institutional money, wrote a blistering report last week saying the current approach to pay at UK listed companies is “not fit for purpose.” It recommended a move away from “one-size fits all” thinking and even mentioned restricted stock for special cases. But the first company to try it has lost. The deep problems here are the sheer size of modern pay packages and the fact that nobody trusts remuneration committees to claw back awards. Weir won’t overcome those concerns in a hurry. It has landed itself in a fine mess – but it’s not entirely of its own making. No pot of gold in sight for RBS’s Project Rainbow branch sell-off Royal Bank of Scotland was asking for trouble when it used the name Project Rainbow to describe the plan to sell 300 branches under the orders of the European commission. As with real rainbows, the end is eternally glimpsed but never attained. The latest delay comes two and half years after RBS revived an old brand – Williams & Glyn – and asserted it would be seen on high streets “soon”. The latest dispatch says there is a “significant risk” that the legal deadline for separation or sale by December 2017 will be missed. The plea is complexity – again. The rewiring job doesn’t sound easy and, to be fair to RBS, it is attempting a stiffer task than Lloyds Banking Group did in similar circumstances with TSB. All the same, it’s ridiculous how long this is taking. RBS, having been told to sell in October 2009, may take eight years to shed 300 branches. It took the Americans the same time to put a man on the moon after JFK’s “by the end of the decade” speech in 1961. |