Volkswagen said on Monday it has overhauled its executive pay to make managers think more carefully about investment decisions and boost their loyalty to the group, Reuters reported.
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
According to the news agency, VW said up to 40% of this year’s annual bonus for senior executives would be dependent on economic value added (EVA) – a measure of profitability which charts returns above the cost of capital.
“We’ve adopted this system so that investment decisions are made more cautiously,” VW spokesman Dirk Grosse-Leege told Reuters, adding: “EVA helps ensure investments are made in the right place at a time when costs have to be cut.”
VW, long known for its high levels of capital spending as a proportion of revenues, reportedly said the new pay structure was part of a drive to reach a group net profit that at least covered the cost of capital employed.
Its spending levels have remained high this year, putting pressure on profits as it launches a huge number of new and updated models, including the fifth generation of its best-selling Golf model and a new Touran minivan, Reuters noted.
“It is a good thing that it is happening – it highlights that the management team is a little bit more aware of these sort of issues certainly than the previous management,” Harald Hendrikse, an auto sector analyst at CSFB in London, told Reuters, adding: “VW do have pretty much the highest capex in the sector excluding BMW. EVA means they are going to have to look at that. But they’re not going to change the culture of the company overnight.”
