FRANKFURT (Reuters) - The German state of Lower Saxony on Friday criticized Volkswagen's <VOWG_p.DE> plans to pay bonuses to top managers when the carmaker is dealing with the diesel emissions crisis and set to cut costs.
Bonuses for senior managers have become a flashpoint in an escalating dispute with the powerful labor leaders at Europe's biggest carmaker as it prepares to finalize a new strategy.
"The state of Lower Saxony is keenly aware of the problematic nature of flexible bonuses," a spokeswoman for Lower Saxony, a major Volkswagen shareholder, said on Friday.
Lower Saxony has clout at VW thanks to a 20 percent stake and its two seats on the 20-member supervisory board, the body which signs off on executive pay.
"It is ultimately a decision for the supervisory board. Opinions on the matter have not yet been finalised," the spokeswoman added. Lower Saxony is home to over 100,000 jobs at VW and the carmaker's largest factory.
German magazine Der Spiegel cited company sources as saying management board members were refusing to voluntarily give up bonus payments, agreeing instead to cuts.
A Volkswagen spokesman said giving up bonuses was currently not up for discussion.
"There is no decision, the supervisory board is set to meet in the second half of the month. The management board stands by its statement that belts need to be tightened. But nobody has talked about giving up bonuses entirely," the spokesman said.
Pressure has mounted to make cuts at VW's core operations in Germany since the emissions scandal broke in September when U.S. and California environmental regulators said they were investigating VW for violating clean air rules.
Insisting on bonus payments may complicate efforts to win concessions from VW's powerful labor representatives, who also have seats on the supervisory board.
A supervisory board member told Reuters that although it was difficult to alter legally binding contracts for managers it would be the right thing to waive bonuses.
"It could be argued that manipulation of diesel emissions helped increase profits in prior years, making it all the more urgent that the supervisory board advise the management board to forgo bonus payments," said a supervisory board member, who declined to be named.
Ulrich Hocker from Germany's association for private investors agreed. "It would be appropriate that the management board members send a clear signal in this crisis. The contractual obligations are a given, but its a moral question."
VW is working on a compromise after tensions this week when labor leaders accused VW brand chief Herbert Diess of using the diesel cheating scandal as a pretext for job cuts.
It may now alter compensation rules for top managers to scale back variable remuneration and, in turn, increase fixed pay, two sources at the carmaker said on Friday.
Executives are aiming to finalize the proposals in time for the supervisory board meeting on April 20 which is due to ratify 2015 results and executives' compensation, the sources said.
A VW spokesman declined to comment on plans to reform remuneration, dismissing it as speculation, referring instead to April 28 when the company is scheduled to publish its annual report.
(Reporting by Andreas Cremer and Sabine Wollrab; writing by Edward Taylor; Editing by Keith Weir)