Germany's SAP offering share-based compensation to staff as stock soars

Economy March 12, 2012 00:00

By Bloomberg

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SAP AG, whose shares are trading at the highest level in 11 years, will extend a stock-based compensation programme to all workers as it gets closer to overtaking Siemens AG as the most valuable German firm.

The biggest maker of enterprise-management software will offer employees so-called phantom stock, which mirrors the share price but doesn’t represent actual equity, to encourage long-term employment and help SAP retain talent, co-CEO Jim Hagemann Snabe said in an interview at the CeBit technology fair in Hanover.

SAP has gained 24 per cent this year in Frankfurt trading as technology companies benefit from demand for applications that allow consumers and companies to access data via smart phones and tablet computers. SAP, which has more than 54,000 employees and is based in Walldorf, has a market value of 62.4 billion euros (Bt2.52 trillion), ahead of auto-maker Volkswagen AG and behind engineering company Siemens valued at 67 billion euros in Germany’s benchmark DAX index.

“I believe it makes a lot of sense to have incentive programmes for the employees as well, that make them interested in the share price of the company and give them an opportunity to participate in our success,” Snabe said yesterday. “This is an industry with a war for talent, and talent is the biggest differentiator for everyone in our industry.”

--‘War of Talent’

Other technology companies have also benefited from rising demand for their products. International Business Machines Corp closed above $200 for the first time last Monday. Apple Inc last month topped a US$500-billion (Bt15.28 trillion) market capitalisation. SAP’s arch-rival Oracle Corp has risen 18 per cent this year.

SAP needs to retain top-performing employees as it plans to boost annual revenue with the help of cloud-computing software, mobile applications gained through its Sybase acquisition and Hana technology, which enables processing of large amounts of data on the fly. For 2010, Snabe received 3.86 million euros, including 950,000 euros in share-based compensation. Co-CEO Bill McDermott was paid 4.42 million euros, including the same amount in stock-based compensation as Snabe. The company hasn’t published its 2011 figures. Snabe and McDermott took over in February 2010.

--Cloud Computing

SAP rose 0.1 per cent to 50.79 euros in Frankfurt on Friday, climbing as high as 51.82 euros, the highest since October 2000.

SAP in 2006 created an incentive plan for executives, senior management and high-performance employees, setting aside 300 million euros in cash if certain goals are met, including doubling its market value by 2010 from an assumed base of 44.8 billion euros. That target wasn’t reached, according to Bloomberg data.

SAP and Oracle are counting on cloud computing, which lets companies run programmes via the Web, as a secure way to outsource data centres and reduce the need for pricey servers and other hardware.

SAP’s cloud business will “certainly” breakeven before reaching a 2015 sales target of 2 billion euros for that category, Snabe said. The company boosted its offering with the $3.4 billion acquisition of SuccessFactors, which closed last month.

Snabe said the company would be able to push its operating margin higher than the 35 per cent targeted for 2015 under the existing business model. At the same time, the co-CEO said he is “not sure” that it would be “healthy” to raise profitability with a stronger focus on the maintenance business because it would come at the expense of the ability to develop new products.

--Emerging Markets

SAP is augmenting its traditional software licence-revenue model with offers in which companies lease applications for shorter time periods.

In the traditional enterprise resource planning, or ERP, segment, Snabe predicts demand from clients reducing the number of software platforms. The business will also benefit from a focus on the retail, finance and health sectors as well as from an expansion in emerging markets such as China, Brazil and Russia, where business-management software isn’t as widely used yet as in other regions, he said.