Bankers' pay to come under scrutiny once again

Brady Dougan (left) and Oswald Gruebel, new and old CEOs of Credit Suisse Group Keystone

Shareholders at Swiss banking giant, UBS, are being urged by an institutional investor to vote against a proposed new pay structure unveiled last year.

This content was published on March 25, 2009 - 13:51

UBS plans to claw back bonuses if long-term results disappoint, but sustainable investment fund Ethos Foundation wants variable pay to be capped to 50 per cent of base salary to prevent "excessive risk-taking".

Switzerland's big two banks, UBS and Credit Suisse, have been at pains to stress how far they have slashed remuneration after having their fingers burned in the financial crisis. Top executives renounced bonuses last year while other staff had theirs slashed.

But such measures have failed to convince everyone, including parliamentarians who have been debating measures to curb top salaries at UBS after it was bailed out by the central bank.

In an effort to win over shareholders, UBS has agreed to give them an advisory vote on remuneration policy at the bank's annual general meeting on April 15. Ethos, which has a stake in UBS, appealed on Wednesday for shareholders give it the thumbs down.

System for the future

Ethos director Thomas Biedermann told swissinfo the fund objected to the continued practice of setting no ceiling on bonuses. It wants variable pay to represent no more than half of the total remuneration.

"It is possible for someone earning a fixed salary of SFr1 million to receive a variable payment of SFr10 million," Biedermann said. "Base salary could be raised in certain cases, but the variable part should not be too high."

"It is important that we adopt a new system that is not only a good one today but in a few years when there is a recovery."

Next month's shareholder vote is only advisory and would not oblige the bank to change course. But Biedermann believes it still represents an opportunity to send out a "strong signal" to UBS's management.

"It would be difficult to get 50 per cent to vote against, but if we get ten per cent then they will know that not every shareholder is happy with the system," he told swissinfo.

Big pay cuts

UBS was not immediately available for comment on the Ethos proposal.

The Ethos plea to UBS shareholders came a day after rival bank Credit Suisse announced sharp falls in pay for top executives. Last year, chief executive Brady Dougan took home around a tenth (SFr2.86 million or $2.53 million) of what he earned in 2007, while chairman Walter Kieholz's SFr2 million represented an 85 per cent reduction.

Credit Suisse said that cash payments to employees had shrunk around 60 per cent last year. "By adopting this approach to compensation in 2008, we believe that we have taken responsible measures to balance the interests of our shareholders and employees," the bank stated.

But not all high flyers at the bank had suffered financially. Kai Nargolwala, who joined the bank as head of the Asia-Pacific region in 2007, received nearly SFr21 million last year.

"Toxic" bonuses

Biedermann added that many investment bankers received toxic assets as part of their bonuses, making it hard to judge the value of their remuneration as the value of such assets could move sharply up or down in the next few years.

"They received assets based on their price at end of December. If that evaluation was too low then it would prove to be a very valuable bonus," he said.

Unlike at UBS, Credit Suisse shareholders will only get to have their say on the bank's 2008 remuneration system at the AGM on April 24. Ethos has yet to decide how it will react on the day.

swissinfo, Matthew Allen in Zurich

Corporate pay pressure

The Ethos Foundation represents about 80 members, mainly pension funds, and advises its clients on how to invest some SFr1.4 billion worth of assets in a sustainable way according to environmental and good corporate governance principles.

Ethos has in recent years become a self-styled watchdog on proper corporate governance of Swiss companies. It has been a particularly vociferous opponent of what it terms "excessive pay" among top executives.

In September, Ethos called on the biggest Swiss companies to allow shareholders to have a say on remuneration policies. A vote would allow shareholders to voice their approval or disapproval on the way the company paid its employees in the previous year.

UBS, Credit Suisse, Nestlé and ABB have agreed with Novartis refusing to give in to the demand. UBS has gone a step further, allowing shareholders to cast an advisory vote on the bank's future pay system.

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