The annual general meetings of Swiss listed companies have been shaped in the last two years by the implementation of the Minder initiative which foresees a binding vote on the pay for the governing bodies and the annual election of board members. These provisions have significantly increased pressure on boards. Ethos’ study on the 204 companies of the SPI Index shows that the transparency and structure of remuneration systems have substantially improved. Vincent Kaufmann, Ethos’ CEO, says “however, the absolute amounts in 2015 are up 2% and often remain high, especially with regard to company performance.”
Continued pressure on boards
In the 2016 annual general meeting season the average support for resolutions submitted to shareholders remained stable at around 96%. Ethos recommended approval of 85% of resolutions. According to Vincent Kaufmann, these relatively high scores should not be misread to hide significant differences across companies, topics and proxy advisors.
Among the most controversial results are the approval of the board fees and the remuneration of the executive management as foreseen by the application ordinance of the Minder initiative. In particular, the level of opposition was high and even exceeded 40% in different companies where the remuneration is poorly structured or too high in light of the size and financial situation of the company. Such votes constitute an important signal and contribute to maintaining pressure on boards.
Remunerations remain high despite the Minder initiative
In 2015, the global amount of remuneration paid to the governing bodies of the companies in the SPI index rose by 2%. The absolute amounts thus remain generally high with an average of CHF 7.2 million for the CEOs of the 20 companies in the SMI index and CHF 2.4 million for their board chairmen. Even base salaries increased for more than half of CEOs continually employed by the same company between 2013 and 2015.
The connection between variable remuneration and company performance over time is not systematically demonstrated. For example, in 50% of analysed companies that posted a decrease in operating margin, this decrease did not translate into a decrease in the bonus. It is however interesting to note that 57% of SPI companies do indeed publish a limit on variable remuneration. In most cases this limit does not exceed three times the base salary, which is in line with Ethos’ recommendations. Another positive point is that less and less companies pay variable remuneration to their boards.
Lack of independence in many boards
The composition of boards regularly improves. Vincent Kaufmann says “however, their independence remains unsatisfactory according to Ethos. In particular, Boards include less than 50% independent members in 45% of SPI companies and in 20% of SMI companies”.
Female representation on boards is in small progression, but is situated at a low level (14%) at SPI companies (20% at SMI companies). This puts Swiss companies well behind the large companies listed in other European financial places such as France (37%), Germany (27%) or the UK (27%). In addition, almost 40% of the SPI companies still do not have a single woman on their board, which demonstrates that self-regulation has difficulty to be effective in this area.
Equal treatment of shareholders put in question
The study also focuses on different protection measures put in place by companies. 15% have multiple classes of shares with different nominal values, 23% have voting rights limits and 28% have an opting out* (or opting up) clause in their articles of association. Several companies have two or three of these measures which can present a risk for shareholders. In particular, when there are multiple classes of shares with different nominal values and an opting out clause (12 companies), a purchaser may acquire a majority of votes (with a small participation in the company’s capital) without having to make a public offer to all shareholders. The interests of a large part of shareholders can thus diverge from that of the controlling shareholder who chooses to sell his/her stake with a premium of which he is the sole beneficiary.
* An opting out clause exempts the purchaser of more than a third of voting rights from the obligation to make a public offer to all shareholders at the same conditions.