Dusseldorf Bayer boss Werner Baumann says goodbye to his post with a drop in salary. Despite a record operating profit, the CEO will receive around five percent less remuneration for 2022, amounting to 5.4 million euros. The main reason: His “performance factor” in the calculation of the short-term bonus was deliberately reduced – as a reaction to the displeasure of the shareholders.
Baumann and the Supervisory Board around the chairman Norbert Winkeljohann have agreed on such a step and thus on a salary cut, as can be seen from the present remuneration report from Bayer.
It states: “The Supervisory Board, in agreement with the CEO, reduced his individual performance factor by 14 percentage points. In doing so, the Supervisory Board and CEO are taking account of the shareholder feedback from the governance roadshows of the past year.”
Bayer does not give any concrete reasons. However, the feedback from investors at the meetings with the Bayer supervisory board chairman was clear, according to financial circles: They criticized the fact that the legal burdens from the Monsanto takeover were not sufficiently reflected in the remuneration of the management board. Investors also complained about the weak share price performance and were dissatisfied with the capital market communication of the Bayer management.
The latter is just as much the responsibility of the CEO as the 2018 purchase of Monsanto. The “performance factor” is an assessment by the Bayer Board of Management apart from the financial targets. For Baumann, this includes, for example, how well he has improved the capital market work and thus the performance of Bayer stock.
Management salaries at Bayer: How performance affects remuneration
In addition, there is progress in transformation, sustainability and in solving the legal complexes in the USA. Behind this lie the lawsuits from Americans who blame the weed killer glyphosate for their cancer. Bayer has not yet finally resolved these legal disputes, but is pursuing a concrete plan to contain the lawsuits.
>> Read also: Glyphosate – why the bankruptcy trick no longer helps Bayer in US lawsuits
In the compensation report, Chairman of the Supervisory Board Winkeljohann writes that the Bayer Board of Management “did a very good job” on all of the qualitative targets and achieved “good performance” above the targets set. As a result, Baumann also exceeded the targets and initially came up with a performance factor of 109 percent.
However, after consultation with the CEO, this factor was reduced to 95 percent. Ultimately, this means a waiver for Baumann. The short-term bonuses for the Bayer Board of Management are based primarily on the achievement of operational targets. This sum is then multiplied by the performance factor.
The supervisory board and Baumann themselves are sending a signal to investors. Many had recently shown increasing dissatisfaction with Bayer management and called for the CEO to be replaced quickly.
Baumann’s contract actually ran until April 2024. But when the search for a successor started in late summer 2022, Winkeljohann made it clear internally that he wanted to present a new CEO at the 2023 Annual General Meeting, who would then quickly take over the reins.
The former Roche pharmaceutical manager will become CEO on June 1st.
(Photo: Bayer AG)
Here’s how it’s happening now: Former Roche pharma chief Bill Anderson will join the board on April 1 and will be present at the upcoming annual general meeting at the end of April. The American will become CEO on June 1st.
>> Read also: This is how the new Bayer CEO Bill Anderson ticks
According to investor circles, the successful succession process has secured Winkeljohann’s re-election as chairman of the supervisory board. He will take office for another term at the end of April. A rival candidate is not in sight.
The fund company Union Investment has already announced that it does not want to re-elect Winkeljohann – it accuses him of accumulating offices. But it is considered unlikely that the majority of investors will also push for a change at the top of the supervisory body after the rapid change of CEO.
The recommendations of the major voting rights advisors such as ISS, on which the Anglo-Saxon funds orient themselves at German general meetings, will be decisive. ISS will cast its vote for the votes at the Bayer AGM on April 12 at the earliest.
The Chief Inspector is standing for re-election at the Annual General Meeting in April.
(Photo: Bayer)
For Winkeljohann, it is not only important that he can present a new and universally accepted new CEO. He also has to explain to investors how he is reacting to the massive criticism of parts of the remuneration system for the board of directors.
Bayer: Shareholder criticism of board bonuses
Last year, shareholders voted against the remuneration report with a large majority. The criticism was varied. Most of all, however, they were bothered by the short-term board bonuses, which are based, among other things, on Bayer’s free cash flow.
Bayer calculates one-off effects – including the billions in outflows for the settlement of the glyphosate lawsuits. As a result, investors complain, the board of directors does not have to answer financially for the legal burdens, while the shareholders feel the consequences in the form of shorter dividends and a weak share price.
>> Read also: These five challenges await the new Bayer boss
Bayer has not yet made any changes to the compensation system for 2022. However, the Supervisory Board had set the target for free cash flow very ambitiously. It was only 60 percent achieved in 2022. This depressed the short-term bonuses for the board members and contributed to the fact that almost all members received less remuneration on balance in 2022.
In the future, the supervisory board wants to be able to intervene more at its own discretion when it comes to paying the board members – especially when evaluating their performance. At Baumann, this was still done by mutual agreement. From as early as 2023, however, the supervisory board will give itself a “limited right to intervene”. A comprehensive right of intervention is to be developed for the remuneration system from 2024.
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