Can SAP afford its Newtown Square-based CEO Bill McDermott?
"We are winning because we have retained and continue to recruit the best workforce in the world," the boss tells staff as shareholders object to his $17M payout. Other software firms pay their CEO a lot more.
A $17 million cash-and-stock annual pay package for Newtown Square-based Bill McDermott, CEO of SAP SE, the Germany-based software giant, was so controversial that shareholders barely voted to endorse the top management group at the company's annual meeting Wednesday. McDermott and his team won with just over 50 percent of the vote.
But the boss's pay gets extra scrutiny at SAP, as the most-valuable German company and the largest Europe-based software maker.
Before the meeting, German shareholder group DSW and U.S.-based Institutional Shareholder Services each criticized McDermott's package and complained that SAP had not been sufficiently responsive to shareholder complaints in explaining why he needs more, Reuters reported.
The ownership structure of European public companies has worked to restrain CEO pay, which has soared at U.S. companies since the 1980s.
German firms, including SAP, typically give labor unions and other worker groups representation on their boards. Banks with large stakes in major corporations have a tradition of urging spending restraint in the executive suite to ensure fiscal stability, tamp down inflationary pressures and maintain peace among owners, managers and workers. Shareholders voted down the executive pay package at German insurer Munich Re earlier this year.
Like its old-line competitors, faced with rising competition from specialty vendors, SAP is scrambling to sell its global customers cloud-compatible systems that employees can tap by smartphone without cannibalizing its long-term licenses to run central corporate software systems.
McDermott defended his pay in a two-page memo in English and German, which was circulated among SAP's 86,000 employees before the vote.
The CEO wrote that stock grants were both a reward for the company's expansion since the 2008 recession and an encouragement to him and other bosses to boost profits and share prices at SAP, which was formed by a group of ex-IBM engineers in the 1970s. SAP remains 20 pecent owned by surviving founders and their families.
Investors "entrusted their dreams to the success of SAP," McDermott wrote. "It is a responsibility to honor the trust."
Then he got down to business: "Let's just tell it like it is: We have a pay-for-performance culture that ties our rewards as employees directly to the value we create for our shareholders."
SAP's company-manager contracts are "based on audacious goals," tying full future stock compensation gains to "a 300-percent increase in SAP's share price and outperforming our peer group by 25 percent over the next few years."
That would boost SAP to a market value of "more than 250 billion euros," nearly double its recent value. If shares jump, employees' long-term compesation will "skyrocket," he added. "And, yes, SAP executives would see a compensation increase."
Acknowledging the boss's pay is "an emotional topic," McDermott insisted SAP is "humble" enough to listen. He said he respected "passionate views" -- but urged workers to consider that "we are a truly global software company," competing with foreign (he didn't have to say U.S.-based) giants that pay more.
McDermott said SAP owed its success to hiring and keeping "the best workforce in the world." He exhorted staff to back the bosses in "this one-in-a-generation growth story." He didn't threaten to leave if the board trims his pay. "We're just getting started!" he concluded.
The pay fight was renewed as SAP grapples with the question of who will head the board McDermott reports to.
His former co-CEO, Jim Hagemann-Snabe, who was expected to succeed aging cofounder Hasso Plattner as chair, has announced plans to instead head German electrical giant Siemens AG.