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"Say on Pay" Proposals

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For a survey of  Siemens shareholder voting inclinations and criteria, conducted specifically to guide that company's management communications relating to the annual meeting referenced below, see

For a recent survey of a broader range of investors to determine voting criteria for compensation issues, including the relative importance of company management and proxy advisor sources of information, see


Financial Times, January 26, 2010 article


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Siemens is bracing itself for a turbulent time as shareholders look set to make today's annual meeting at the engineering group a test case for legislation that allows investors to cast a non-binding vote on executive pay.

The law, passed last year but only now being tested, brings Germany into line with several other European countries, led notably by the Netherlands where investors have had some big successes in the past two years.

Anxiety at German blue-chip companies is high because of the law, which gives investors the chance to approve or reject the salary schemes.

Last week, shareholders at German steel and industrial conglomerate Thyssen-Krupp voted on pay, the first time for a company in the Dax-30 blue-chip index.

Thyssen's remuneration system, which was praised by most shareholders, passed the vote with a majority of 99.55 per cent.

But Gerhard Cromme, who is chairman at both ThyssenKrupp and Siemens, is set to face more opposition today at Germany's largest industrial group, where investors are expected to find fault with parts of Siemens' remuneration system.

RiskMetrics, the US shareholder advisory group, has criticised parts of Siemens' pay system for failing to include enough long-term incentives in the bonus programme.

It has also questioned the independence of the supervisory board's remuneration committee and criticised a clause that grants executives a pay-off of up to three times their annual salary in case of a takeover.

In spite of some criticism, a Siemens director and several shareholders showed little doubt that they expected broad approval at the shareholder meeting.

But investors say not all votes on German pay systems will pass smoothly. Thomas von Oehsen, head of German corporate governance research at RiskMetrics, says: "A large majority of the Dax-30 companies will bring this on the agenda for their annual meetings. I do not believe that shareholders will wave through all those remuneration models."

Such rejections have triggered small revolutions in corporate boardrooms in European countries where the vote on pay has been adopted. Shareholders in Dutch companies, for instance, received a binding vote on pay in 2004 but it took them several years to start using it effectively, handing out bloody noses to groups such as Royal Dutch Shell, Philips and DSM.

The rebellion at Shell last year was perhaps the biggest shareholder protest over pay in Europe to date, with 59 per cent of investors voting against its remuneration plan after the oil company paid bonuses even though it had missed performance targets. "It certainly made us pay attention. It wasn't very comfortable at all," says one Shell director.

But most of the successes were achieved in a less public forum. Many companies have quietly withdrawn pay policies after it became clear that shareholders would attack them.

The life sciences group has spent a year planning a pay policy, which it will unveil at the end of February. However, it is moving less towards shareholders and more towards other stakeholders. "It will reflect a triple bottom line," says Feike Sijbesma, DSM's chief executive. "People, planet and profit."

Among the many shareholders keen for a say on pay in all European countries is Hermes, the UK activist investor currently leading a boardroom fight at Infineon in Germany.

But debate remains as to whether such votes should be binding as in the Netherlands and parts of Scandinavia or advisory as in the UK, Switzerland, Spain and Germany. "Will the boards listen if it is not binding? I just don't know," says a leading European investor.

The chairman of a large German company argues that the non-binding system will spur huge changes in a country that has often been criticised for its poor corporate governance. "It will make a real change because it is unthinkable that a supervisory board would go back to business as usual after shareholders have rejected the pay system. They will listen to investors and take on at least some of their ideas," he says.

Henning Gebhardt, head of German equities at DWS, the country's largest institutional shareholder, agrees. "The public discussions about executive pay will lead to an alignment of interest between shareholders, supervisory board and management," he says.

Mr von Oehsen says: "Other European countries such as Scandinavia, Netherlands and the UK are more progressive in there executive pay systems. But thanks to the say on pay legislation Germany will catch up."

© Copyright The Financial Times Ltd 2010.






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