Symbolic charge

Siemens shareholders recommend a new pay system for their top managers

The financial scam, which has been shaking the oldest German technology concern Siemens for several years now, has formally come to an end. For many years, a system of multimillion-dollar bribes and secret bank accounts spread throughout the world was almost the norm of life there. Yesterday, at the annual final meeting of the concern's shareholders, which took place in the famous Olympiahall in Munich, the size of the fine for the main culprits of this financial drama was announced.

Siemens is ready to demand a total of about 40 million euros from a group of its former top managers, including ex-chairman Heinrich von Pierer. However, against the background of 2.5 billion euros, the amount, according to the new management of Siemens, characterizing the amount of damage caused to the enterprise during the scam, this compensation seems insignificant. If Siemens wins this case, half of this money will be recovered in court. Two former members of the board of directors, Heinz Joachim Neuburger and Thomas Hanswindt, unlike the other nine ex-managers who negotiated with the concern for a compensation amount of 19.5 million euros, refused the proposed settlement agreement and preferred the legal route. As a result, compensation claims against them from Siemens have approximately tripled - according to the lawsuit, 20 million euros can now be recovered from both top managers (15 million from Neuburger and 5 million from Hanswindt).

So far, the largest amount has been obtained out of court from the former head of the board and chairman of the supervisory board of the concern, Heinrich von Pierer. In December, he voluntarily agreed to pay 5 million euros. Apparently, there was no particular reason for both ex-managers to go this route, bypassing the court, since investigative actions are being carried out against them as part of criminal cases opened by the prosecutor’s office. Neuburger served as chairman of the board overseeing finance from November 1997 to April 2006. He then moved to investment firm KKR, which he left only at the beginning of last year. A criminal case has been opened against him, in which he is accused of bribing the leaders of the councils of the concern's labor collectives. Hanswindt, who oversaw telecommunications on the board before his arrest in 2006, is also under investigation. The amount assigned to him for payment turned out to be lower, since he was not on the board of the concern for long and, in the opinion of the current management, he still will not be able to shell out as much money as other former top managers.

Another sensitive topic brought up for discussion by Siemens shareholders yesterday in Munich was the remuneration model for current board members. The discussion sparked, as informed sources noted, a heated debate. The discussion was not about the amount of salaries and bonuses for individual top managers, but only about the monetary reward system. Moreover, the decisions made yesterday by shareholders on this matter are not binding, but, as noted, “carry a large symbolic charge.” The pioneer on this path in Germany was the steel concern Thyssen-Krupp, which adopted a similar document, which is considered something like a code of honor for a member of the board.

Even on the eve of the shareholders' meeting, the IG Metall Bayern union welcomed Siemens' intention to align the income stream of its top executives with common sense. However, at the same time, the trade union expressed its dissatisfaction with the fact that the payment system “does not consistently pursue the goal of linking the decisions of the concern’s management to sustainable, long-term development.” Thus, the new payment model does not meet the requirements of the law adopted in this regard in Germany last summer. More than 9.5 million euros of the 27 million euros paid to Siemens board members in 2009 were bonuses. Fixed salaries amounted to only 7.5 million euros, and approximately 9.5 million euros came from share-related payments. “The pay of Siemens board members is excessively and one-sidedly focused on the current share price and short-term earnings,” the industry union diagnosed. It was further said that, on the contrary, long-term commercial goals, security of job security and sustainability of economic indicators do not play any role in the new remuneration system for Siemens management. The same opinion, as it became known on the eve of the annual meeting, is shared by the association of shareholders from labor collectives. Its representatives did not support the new system of remuneration for top managers in its original form.

Nevertheless, in a crisis, the concern has to cut the incomes of workers not only at the very top of the pyramid of the workforce, but also in the middle and lower parts. Siemens Chairman Peter Löscher announced yesterday the upcoming “personal cuts,” as mass layoffs are diplomatically called in such cases. The first round of negotiations between management and employees' representatives on this matter will take place on January 28. Last year, 22 thousand jobs were cut at Siemens plants around the world.

Yuri Shpakov, Berlin