Hedge Fund

Activist Shareholder Targets VW Bonuses

VW CEO board and supervisory board members source Julian Stratenschulte dpa 58639068
VW's non-executive chairman Hans Dieter Pötsch, left, and CEO Matthias Müller, middle, will face shareholders on Wednesday.
  • Why it matters

    Why it matters

    TCI’s demands could force Volkswagen to change its corporate governance structure, giving minority shareholders more sway over Europe’s largest carmaker.

  • Facts


    • Volkswagen admitted last September it had manipulated around 11 million diesel vehicles worldwide, plunging the firm into crisis.
    • The Porsche and Piëch families, descendants of carmaker Ferdinand Porsche, control Europe’s largest automaker through a holding.
    • Matthias Müller, VW’s CEO, and Hans Dieter Pötsch, the non-executive chairman, lead the carmaker and are seen as confidantes of the Porsche and Piëch families.
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British hedge fund TCI, an activist investor led by one of Europe’s biggest boardroom reformers, Chris Hohn, is pressuring Volkswagen to scrap its executive bonus system and make other shareholder-friendly changes ahead of the automaker’s annual shareholders meeting in June.

In a letter, TCI, which holds a 2-percent stake in Volkswagen, said it was a “disgrace” that members of the automaker’s management and non-executive boards earned a combined €63 million, or $71.8 million, in 2015, when VW lost €1.6 billion and shareholders received just €68 million in dividends.

The letter, a copy of which was obtained by Handelsblatt, was addressed to members of the VW boards, including Chief Executive Matthias Müller and the supervisory board chairman, Hans Dieter Pötsch.

“We believe that this excessive top management compensation ... has encouraged aggressive management behavior contributing to the diesel emission scandal.”

Chris Hohn, Director, hedge fund TCI

Europe’s largest automaker, which is based in Wolfsburg, is in crisis mode after admitting last September it had manipulated diesel emissions on 11 million cars worldwide. Top managers say they were unaware of and not involved in the fraud, which the company has painted as the work of a few mid-level engineers.

The cars emit more toxic nitrogen oxide gases than U.S. laws allow.

VW set aside €16.9 billion last year to repair the cars and pay for legal costs. The automaker’s €1.6-billion loss last year was the highest since its founding in 1937.

TCI has a 2-percent stake in VW worth €1.2 billion, according to the letter, of which Handelsblatt has obtained a copy.

The hedge fund faces an uphill battle initiating change at Volkswagen, Germany’s largest publicly traded company. TCI’s stake in VW is held in preference shares, which have no voting rights. Control of the company is held by two families — Porsche and Piëch — which have been resistant to shareholder-friendly measures in the past.

But the British fund’s offensive against VW’s management is sure to enliven and perhaps spark debate and criticism at the automaker’s June 22 annual shareholders’ meeting.


TCI Christopher Hohn of TCI The Children's Investment Fund on January 27 2009 in London source Getty Images 59848517
Public appearances of Christopher Hohn of TCI are rare. This picture dates from January 2009, when Mr. Hohn appeared in London before a committee, which investigated the banking crisis of 2008. Source: Getty Images


“After all that has happened at VW a lot has already been put in motion to change things,” said Frank Biller, analyst at LBBW Bank in Stuttgart. “Contracts are being reviewed to see whether these should be altered in the future. This letter will only increase pressure a little bit and might speed up the process.”

The hedge fund and Mr. Hohn earned a reputation in 2005 when it campaigned for the resignation of Deutsche Börse’s chief executive, Werner Seifert, and in 2007, when it urged Dutch bank ABN Amro to sell operations or break itself apart. In the end, Mr. Seifert resigned and three banks bought and carved up ABN Amro.

“The dirty secret of Volkswagen group is that for years management has been richly rewarded with massive compensation despite presiding over a productivity and profit collapse,” Mr. Hohn told the Financial Times, which first reported on the letter on Friday.

“We believe that this excessive top management compensation . . . has encouraged aggressive management behaviour contributing to the diesel emission scandal,” the investor told the paper.

VW’s preference shares rose 2.8 percent on Friday and were up another 2.7 percent on Monday morning at €125.10 in Frankfurt.

VW’s bonus system, which is currently tied to dividend payments, should be overhauled and linked to the company’s share price development and paid out in stock over a three-year period, TCI said in the letter.


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Volkswagen, whose preference shares are still down 23 percent compared with last September, was not immediately available to comment when contacted by Handelsblatt Global Edition. The carmaker, however, is aware that executive remuneration is a sensitive topic and it is looking at reforming its pay scheme, people familiar with VW have recently told Handelsblatt.

In its letter, TCI also criticized the strong influence of VW’s employees on operations. Labor representatives occupy half of the carmaker’s 20 supervisory board seats, which is mandatory by German law. The non-executive board has the power to hire and fire managers and determine strategy.

The hedge fund also lamented VW’s low productivity in comparison with rivals Toyota and Renault, and, according to the Financial Times, VW “abused” its minority shareholders, which tend to own preference shares without voting rights.

The Porsche and Piëch families, descendants of carmaker Ferdinand Porsche, control Europe’s largest automaker with a 52.2 percent stake of ordinary shares which carry voting rights, while the German state of Lower Saxony holds a 20 percent stake of VW’s ordinary shares and Qatar 17 percent.


Christian Schnell is an editor with Handelsblatt and covers the auto industry in Germany. Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. To contact the authors: schnell@handelsblatt.com and kreijger@handelsblatt.com

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