VW shareholders question bonuses in wake of U.S. diesel deal

Thu Jan 12, 2017 7:52am EST
 
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By Edward Taylor and Simon Jessop

FRANKFURT/LONDON (Reuters) - Volkswagen (VOWG_p.DE: Quote) investors demanded reforms and questioned executive bonuses after the carmaker admitted to criminal offences in rigging U.S. emissions tests and U.S. prosecutors indicted six current and former managers over the scandal.

The German company agreed to pay $4.3 billion in civil and criminal fines in a settlement with the U.S. Department of Justice (DoJ) on Wednesday, the largest ever U.S. penalty levied on an automaker.

Volkswagen (VW) admitted about 40 employees at its VW and Audi brands deleted thousands of documents in an effort to hide from U.S. authorities the systematic use of so-called defeat devices to rig diesel emissions tests, a scale of wrongdoing that led some investors to call for deep reforms.

"For senior management to receive any bonuses in 2017, we would now expect VW to deliver a dramatic improvement in profits," said Ben Walker, partner at activist hedge fund TCI, which last year publicly criticized "corporate excess on an epic scale" at the carmaker.

"Seventeen billion euros of EBIT (earnings before interest and tax) should be the minimum amount for any bonus to be received by executive management. Below that, zero bonus," he wrote in an email, noting VW's admissions of guilt in the DoJ settlement did not extend to any board-level managers.

VW has forecast an operating margin of 5-6 percent on expected sales of around 213 billion euros ($227 billion) for 2016, implying EBIT of around 10.6-12.8 billion euros.

It has set aside more than 18 billion euros to cover the cost of the diesel scandal, a figure it is expected to raise in light of the DoJ deal.

Moody's credit-rating agency said the deal could raise its provisions expectation of 21.2 billion euros by around 1 billion euros, but welcomed the removal of uncertainties.   Continued...

 
FILE PHOTO: A Volkswagen logo is seen at a dealership in Seoul, South Korea, August 2, 2016. REUTERS/Kim Hong-Ji/File Photo - RTX2YF74