Results then rewards

Fat VW bonuses merited - but only after its rescue

Volkswagen (VW) has a bonus problem - not the amount, but the timing. Chief Executive Matthias Mueller and his peers need the motivation of a generous pay package, but only if and when they have saved VW from an existential crisis. What's lacking is deferred pay, linked to saving VW from its current mess.

At first sight, the group's dreadful 2015 performance might suggest bosses deserve no bonuses at all. A scandal over the faking of emissions data in the United States has wiped out around Euro 22 billion in stock market value since mid-September. Analysts on average expect a 61 per cent fall in operating profit this year. Yet executive board members are only prepared to stomach a cut to their variable pay, but not a complete cancellation, Der Spiegel has reported.

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Binning all variable pay would lower executive compensation at VW to around Euro 1.9 million for Mueller, assuming he gets the same fixed pay as his ousted predecessor, who earned a total of Euro 15.9 million in 2014. Daimler chief Dieter Zetsche earned Euro 9.7 million in 2015. Yet driving VW out of its existential crisis is arguably the toughest job in the global automotive industry. Herbert Diess, the boss of the all-important VW core brand, joined from BMW only last summer.

VW's intricate executive compensation scheme does not set the right incentives. Bonuses are paid out immediately and 100 per cent in cash.

A fair compromise would be to defer the bonuses and make the payout contingent on the group overcoming the emissions crisis. Adding a mechanism that allows VW to claw back bonuses after misconduct has been revealed would also make sense. Former boss Martin Winterkorn earned bonuses of Euro 68 million between 2009 and 2014, the period when Volkswagen was manipulating US emission tests.

The future of Europe's biggest auto maker - and almost 600,000 jobs - critically hinges on good management. Good management calls for generous rewards. But only after the job has been done.