Siemens awaits investor vote on
By Daniel Schäfer in Frankfurt
and Richard Milne in London
Published: January 26 2010 02:00
| Last updated: January 26 2010 02:00
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
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