Deutsche Bank investors, while backing Chief Executive Officer John Cryan, rejected the bank’s new plan for executive compensation on concern it gives the board too much scope to reward managers.
Shareholders at their annual meeting in Frankfurt on Thursday voted 51.9% against the plan, which introduces an extra bonus component for Deutsche Bank’s four divisional heads.
While the rejection isn’t binding, supervisory board chairman Paul Achleitner said earlier in the day that the company would consider providing more information about the pay system in light of the objections.
On “the new remuneration system, we disagree,” Hans- Christoph Hirt, co-head of Hermes EOS, which represents more than 40 institutional investors in the bank, said in a Bloomberg TV interview before the vote Thursday. “We think it’s the wrong time, it’s too much discretion.”
The bank’s shares have declined by almost a half since Cryan succeeded Anshu Jainin July, while the dividend is on hold as he cuts thousands of jobs and scales back the debt-trading empire built by his predecessor.
The changes to the pay structure are part of the CEO’s overhaul of Deutsche Bank’s leadership by promoting the heads of its businesses to the management board to provide greater accountability.
The bank says its pay plan rewards “the achievement of short and medium-term business policy and strategic objectives” of the units.
The degree to which the targets are achieved, as well as the size of the bonus, are determined on a discretionary basis by the supervisory board, the company’s filings show.
Deutsche Bank said in March that management board pay will be capped at €9.85mn ($11.1mn) for 2016. Cryan will receive a salary of €3.8mn while other top executives will get €2.4mn each, the company’s filings show. Bonuses depend on the company’s performance, progress it makes in its restructuring and other metrics.
That overhaul has become tougher after an industry-wide investment banking downturn compounded concerns that Deutsche Bank will be forced to sell shares to pay fines and meet regulatory requirements for more capital. Still, shareholders backed Cryan with 98.5% of votes cast in support of his performance, while Achleitner drew 86.9%, the bank said as the meeting concluded.
The wider supervisory board received a 91.5% approval rating last year, company filings show.
The CEO was relatively unscathed in comments at the meeting, held at Frankfurt’s Festhalle arena, compared with Achleitner, the focus of doubts about the bank’s corporate governance. He was criticised for not changing Deutsche Bank’s leadership earlier and failing to prevent a public spat on the board last month.
“Please do exactly what you have promised,” Andreas Thomae, a fund manager at Dekabank, one of Deutsche Bank’s 10 biggest investors, told Cryan. “We believe you can succeed in this mission, and wish you to steer the ship through rough seas to a safe harbour.”Deutsche Bank has the lowest price-to-book value of the top 10 global investment banks, signaling that investors think it is worth less than its assets. It’s on track for its worst yearly stock decline since the financial crisis, down 33% so far in 2016.
The drop has outpaced the 20% decline for the 39-member Bloomberg Europe Banks and Financial Services Index.
“Mr Cryan, we think you are the right man at the right time and have to pick up the pieces that your predecessors have left you,” Ingo Speich, a fund manager at Union Investment, one of the bank’s top 20 shareholders, said at the meeting. “Deutsche Bank is in the worst crisis of its history.”
Though investors stayed supportive, analysts’ opinions are mixed. While JPMorgan Chase & Co said Thursday that Deutsche Bank trades at an unjustified “distressed valuation,” Berenberg cut the bank to a sell three days earlier. Analyst James Chappell said Cryan is stuck in a “vicious circle,” repairing an impaired business that will inevitably require a sale of new stock. “We understand your frustration and are aware that in the past we didn’t always reach the goals we set ourselves,” Cryan told shareholders. “We’re still making good progress on our strategy despite the strong headwinds.”
In his last day sharing the co-CEO title with Juergen Fitschen, Cryan reiterated that Deutsche Bank may suffer a second straight annual loss this year. He said he is “cautiously confident that we are gradually approaching the home straight as far as our litigation is concerned.”
Cryan’s strategy, announced in October, included expanding the asset reduction Jain had planned in investment banking, as well as deeper cost cuts and measures to improve Deutsche Bank’s controls. Those efforts had little effect on first-quarter profit, which fell 61% as trading revenue slumped. Achleitner told investors Deutsche Bank needed to address its strategy before making any changes to its executive team, and also addressed the resignation of Georg Thoma, a director who oversaw a committee probing wrongdoing. Thoma resigned after deputy chairman Alfred Herling accused him of being “overzealous.”
Thoma’s resignation, though regrettable, was in the interest of the bank given “the relationship of trust was affected,” Achleitner said.The chairman’s term expires in a year. He said if he were up for reelection this year, he’d stand again.
“I represent 6,618,816 hopeless, dividend-less, criticism- filled shares,” Hans-Martin Buhlmann, the bow-tied chairman of the Cologne-based Association of Institutional Shareholders, told Achleitner, Fitschen and Cryan after they spoke. “What we heard in the three speeches is cause for hope. But now you have to live those speeches like you gave them.”

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