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Volkswagen’s Board Is Reining In Executive Pay (a Little)

Kirsten Korosec
Fixed salaries will rise, but bonuses will be limited.

Volkswagen is changing the way it pays its top executives, including capping their total compensation, as it tries to assuage labor leaders and shareholders who have criticized the automaker for doling out bonuses even as sales fell following the diesel emissions scandal.

The new remuneration system, approved on Friday, increases by 30% the chairman’s fixed salary to 2.125 million euros ($2.3 million) and 1.35 million euros ($1.4 million) for the remaining board members.

However, total earnings will be capped at 10 million euros ($10.57 million) for the chairman and 5.5 million euros ($5.8 million) for the rest of the board, Volkswagen says. Executives can only reach that high mark if Volkswagen Group performs exceptionally well, the company says.

Bonuses will not be paid if VW’s operating profit is below 9 billion euros ($9.5 billion) and return on sales remain at 4%.

The new system will reduce the maximum pay theoretically possible by up to 40% compared with the previous one, Volkswagen says.

The German automaker has come under increasing pressure to cut bonuses--or eliminate them altogether--in the wake of the diesel emissions scandal that erupted in 2015 and led to falling sales and ultimately losses as well as criminal fines and lawsuits.

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Under the old system, Volkswagen executives received a fixed salary as well as two variable bonuses--one based on personal performance and another determined by the company’s performance.

Volkswagen Group supervisory board chairman Hans Dieter P?tsch agreed last year to a reduction in bonuses he was set to receive from his previous job as the automaker’s chief financial officer.

“The new remuneration system takes its cue from the management board remuneration systems commonly found in DAX companies and meets all of the requirements of the German Corporate Governance Code,” P?tsch said in a statement, referring to publicly traded companies on the German stock index known as DAX.

Matthias M?ller, chairman of the board of management at Volkswagen, also supported the change.

“We also see the new system as an important building block in the implementation of our TOGETHER 2025 strategy,” he said in the statement.

The so-called 2025 strategy, adopted in June, involves restructuring the company’s core automotive business to focus more on electric vehicles and autonomous driving technology, boosting profit margins, and possibly selling some assets. The company plans to introduce more than 30 all-electric vehicles over the next 10 years, with a goal of selling two to three million of these EVs in 2025.

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