Executive pay comes under the spotlight

Executives will hope to avert another shareholder revolt Keystone

The salary increases that Swiss managers award themselves are generally appropriate, and the recent "fat cat" hysteria distorts the real picture, a study has found.

This content was published on October 3, 2006 - 20:57

However the report into Swiss compensation practices calls for more transparency and independent procedures.

The study found that chief executives at Switzerland's top 500 firms, excluding banks and insurance companies, earned on average SFr657,000 ($528,000) a year once the two highest earners were removed from the equation. Board chairmen received SFr300,000.

Co-author Professor Peter Leibfried from St Gallen University's audit and accounting department said the debate was focussing too much on a handful of high earners.

"In general, management compensation practices in Switzerland are not as bad as the current debate suggests," he said.

Individual cases

"There are individual cases which are way out of the framework, but you can never prevent that in a free economy."

Chief executives at Switzerland's top 500 firms in terms of sales were asked to fill out a questionnaire prepared by accountancy firm KPMG Switzerland and experts at St Gallen University. About 18 per cent responded.

The questionnaire asked who sets pay levels, the reasoning behind increases, what form compensation takes and how this is represented in company accounts.

The report criticises companies for allowing executives and chairmen to be present when their pay is being discussed, instead of appointing independent compensation committees.

Communication of pay increases to shareholders should also be improved to allow transparency, it commented, adding many pay awards are set to promote short term goals and do not include enough shares and options in the mix.

Public outcry

However, Leibfreid insists that pay levels are comparable with the rest of Europe and lag behind those in Britain and the United States. He believes the public outcry is more about recent pay hikes than general salary levels.

"We have seen in Switzerland a significant increase in pay levels in the past few years with selected companies and selected individuals. This is due to the internationalisation of those companies and it is pretty new to the public," he told swissinfo.

One in seven of the respondent companies has the same person as both chief executive and chairperson. Most of these firms are owned by a single shareholder or by families and compensation packages tend to be set higher.

Dominique Biedermann, director of Swiss pressure group Ethos Foundation, recommends salary caps and more rights for shareholders to influence pay awards.

"Unfortunately, the board members in a few companies haven't done their job correctly, which is why we need additional control mechanisms," he told the report.

swissinfo, Matthew Allen in Zurich

Key facts

Of the responding companies, the highest earner among chief executives received an annual SFr21.5 million ($17.28 million).
One in every five CEOs earns in excess of SFr1.2 million.
Other executive managers are awarded on average SFr381,000. Pay for ordinary board members is between SFr25,000 and SFr60,000 on average.

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In brief

The survey was conducted between May and June this year. The banking and insurance sectors were excluded because the industries are governed by different sets of compensation and reporting rules to the top 500.

Of the participating firms, 62% were privately owned and 38% listed on the stock exchange. Two thirds of the stock exchange listings were exclusively in Switzerland – the other third were listed additionally or exclusively abroad.

About half of respondents believe board members will receive higher pay or benefits in the next few years, while only one in five foresee further increases for executive managers.

Just over half the companies surveyed have compensation guidelines, while only 38 per cent have an independent compensation committee.

New laws come into effect from the beginning of next year requiring publicly listed companies to reveal more details of pay, bonuses and other benefits for top management.

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