Privatization in the housing market: reward in the millions

Deutsche Wohnen increases its management board compensation by 160 percent. Andreas Segal received 2.95 million euros from the swallowed competitor GSW.

GSW swallowed up, first big bonuses paid out Photo: imago/Schoning

The remuneration of the executive board of the housing company Deutsche Wohnen AG increased last year from 2.5 million to 6.5 million euros, an increase of 160 percent. The remuneration of the three-member board alone almost doubled. This is revealed in the annual report for the past year.

A remarkable sum, and not only because of its size: for the 6.5 million euros include a severance payment of 1.65 million euros and bonus payments of 850,000 euros for the retired CFO Andreas Segal. He was only in office for 22 months and received a basic salary of 450,000 euros in his final year. He was already a board member of Berlin-based housing developer GSW – once the largest state-owned housing company, which Deutsche Wohnen bought in 2013. Segal moved to the parent company with the controversial sale.

Deutsche Wohnen is the second-largest owner of apartments in Germany after Vonovia – formerly "Deutsche Annington" – with almost 150,000 homes, and is listed in the second most important share index, the MDax. According to a remuneration study by the Deutsche Schutzvereinigung fur Wertpapierbesitz (DSW), the salaries of board members of MDax companies rose by an average of just seven percent in 2013 – more recent data is not available.

With the purchase of the Berlin state company GSW, the group grew by 60,000 apartments and has since had a strong presence in the capital. GSW was privatized over ten years ago by the then red-red Berlin Senate. At the time, Michael Muller, the current governing mayor and then head of the SPD parliamentary group, ensured that a majority in his parliamentary group was in favor of the controversial sale.

Bonuses quadrupled in some cases

The purchase of GSW has paid off for Deutsche Wohnen’s board members in three ways: For example, the base salary of CEO Michael Zahn has risen by 80 percent within two years. This can be explained by the growth of the company, above all due to the purchase of GSW: If a company gets bigger, board members can demand more. In Zahn’s case, the performance-related bonuses have quadrupled compared to the previous year: he received 1.2 million euros.

The bonuses are based on the company’s high profits, which amounted to 1.2 billion euros last year. Rising rents have led to this – and savings, among other things at the expense of employees: In the course of the merger, departments were cut and the old GSW workforce was halved. Unlike GSW, the parent company is not bound by collective agreements and pays lower salaries.

CEO Michael Zahn has also received "special compensation" – a kind of reward for the successful takeover of GSW from the Group’s point of view. According to the annual report, he was granted 900,000 euros, but was actually paid more than 1.1 million euros over three years. Deutsche Wohnen’s press office was unable to explain the difference.

Figures "in need of explanation

Christiane Holz, the remuneration expert of the Deutsche Schutzvereinigung fur Wertpapierbesitz (DSW), also considers the figures "in need of explanation." "This could be a topic for the Annual General Meeting," she says. It will be held on June 22 in Frankfurt am Main. Overall, it sees Deutsche Wohnen’s management board compensation "in the midfield of comparable companies" – measured by the absolute amount, not the high rates of increase.

The role of former CFO Andreas Segal, a former GSW board member, seems odd. Shortly after the takeover, he became CFO at Deutsche Wohnen, while his co-board member from GSW, Jorg Schwagenscheidt, left – reportedly in protest at the demise of GSW.

An old acquaintance sits on the supervisory board: Wolfgang Clement, one of the most vehement advocates of privatization.

A former GSW executive says Segal’s job of organizing the takeover quietly was done and they had no real use for him anymore. Deutsche Wohnen already had a chief financial officer in Lars Wittan. Andreas Segal, who did not remain unemployed for long and started working for the Austrian housing group "Buwog" just a few weeks later, could not or would not answer inquiries from the taz.

No comment

The Berlin Senate Department for Urban Development also did not want to comment on the increase in pay. Segal became CFO at GSW when the state of Berlin still had influence on the company through the supervisory board. One does not express oneself to executive committee salaries of privately managed enterprises, says speaker Martin Pallgen. Deutsche Wohnen’s press office states: "The system and level of remuneration for the Deutsche Wohnen Management Board are determined by the Supervisory Board, which acts in accordance with stock corporation law and the requirements of the German Corporate Governance Code.

An old acquaintance from politics sits on the Supervisory Board, the former "super minister" of the red-green federal government, Wolfgang Clement. He, too, did not answer any of the taz’s questions about compensation. On the question of whether Segal had to leave because there was no further use for him, Clement said through his spokesperson: "You can’t seriously expect an answer to an obviously absurd question."

It is fitting that Clement, of all people, who left the SPD in 2008, sits on the supervisory board. During Gerhard Schroder’s chancellorship, he was one of the most vehement advocates of privatizing public companies and a so-called lean state.

In this context, questions about executive board salaries are appropriate. In 2014, when the Board of Management and Supervisory Board sought shareholder approval for the new compensation system, they received only a razor-thin majority of 51.98 percent. This was a clear vote of no confidence; such a close result is extremely rare at AGMs. Deutsche Wohnen has demanding shareholders who traditionally ask critical questions: Major shareholders include U.S. asset manager Blackrock and the Norwegian sovereign wealth fund.

The board members currently have plenty to draw from, the employees less so. Next year, the old collective bargaining agreement for the GSW employees who have been taken over will expire. They will then be relegated to the lower Deutsche Wohnen pay scale.