German rules reveal Daimler chief paid US$16.4 million

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The Financial Times / February 17, 2015

Daimler, the world’s largest truckmaker whose brands include Mercedes-Benz, Freightliner and Western Star, has published the actual take-home pay of its senior managers under new German corporate governance rules – and revealed that chief executive Dieter Zetsche is the country’s second-highest-paid employee at a listed company, having received US$16.4 million (€14.4 million) last year.

Alongside a conventional pay table detailing the pay and bonuses awarded to executives for their efforts in 2014, the Stuttgart-based car and truck maker on Tuesday published a new table showing what executives actually took home.

For Daimler, that meant including details of how a stock-related long term incentive scheme entered into four years ago ultimately paid out.

In its remuneration report, the group revealed that Mr Zetsche gained US$8.5 million (€7.5 million) in 2014 arising from this 2010 incentive plan, bringing the total payments that he received last year to US$16.4 million. In 2013, he received US$15.6 million (€13.7 million). The sums are subject to tax.

By contrast, the company said that Mr Zetsche had been awarded – but not yet received in full – around US$9.6 million (€8.4 million) in pay and bonuses for his work in 2014, a fraction more than in 2013. How much he actually receives will depend on how the company performs in future.

Daimler’s pay report demonstrates how investors are now being given much more detailed information on executive pay in Germany, following the overhaul of the country’s corporate governance code in 2013.

This reform was intended to make management board members’ pay more transparent over time and also more comparable with other companies.

Michael Schneider, head of environmental, social and governance at Deutsche Asset & Wealth Management, said: ““Of course we like [the reforms] – any additional transparency is helpful for investors . . . You can also see much more clearly how companies intend to balance the interests of shareholders and executives when structuring long term incentive plans.”

Mr Zetsche’s US$16.4 million take-home pay puts him second only to Martin Winterkorn, Volkswagen chief executive, who was awarded US$17.1 million (€15 million) in 2013, the most recent year for which data is available – although those figures are not directly comparable.

In 2012, Mr Winterkorn’s €17.5m in pay and bonuses triggered an outcry in Germany and helped catalyse the overhaul in how companies report executive pay.

Under Mr Zetsche’s leadership, Daimler’s fortunes have been transformed over the past two years, thanks to a new line-up of sleek and sporty Mercedes-Benz vehicles. Its share price stood at about €37 at the start of 2010 is now above €82.

Daimler’s shareholders are also set to receive a higher dividend this year. Last year, its investors voted almost unanimously voted to approve the pay scheme.

But in spite of Daimler’s much improved performance, Mr Zetsche’s take home pay will not keep increasing – because the new governance rules also oblige German companies to set caps on executive pay.

Daimler has set a cap of €10.15m for Mr Zetsche, which will apply from 2018 when the 2014 long-term incentive scheme pays out.

If Mr Zetsche had all met his long-term targets, he would otherwise have been in line to receive a maximum of €14.6m in four years time for his work in 2014.

Daimler is also saving diligently for when Mr Zetsche retires. It has made €39m in provisions to fund his pension – a jump of some €10m since last year – according to the pay report. Low interest rates have made funding future pension obligations more difficult.

Earlier this month, Mr Zetsche explained that his large pension pot was due to his almost 40 years of service to Daimler and that the company’s pension system had since been reformed.

Manfred Bischoff, chairman of Daimler’s supervisory board which oversees management and sets executive remuneration, received a 20 percent increase to his pay last year, taking it to €448,500. Investors also approved that increase at last year’s annual meeting.