Ethos published today its 2009 study on the executive remuneration at the 49 largest Swiss listed companies. Aggregate remuneration increased by 21%. The increase is particularly high in the financial sector (+73% on 2008). In addition, several companies run incentive plans whereby initial grants have substantial upward potential.
As there is no obligation to disclose the amounts released at the end of the performance period, the overall transparency remains insufficient. A positive note is that 21 companies now put their remuneration report to the vote of the shareholders. Ethos will continue to engage with companies urging them to introduce an advisory vote of their remuneration report at the next proxy season.
The Ethos Foundation published its fifth study on executive remuneration at the largest Swiss listed companies (included in the SMI and SMIM indexes) for the financial year 2009.
Remuneration levels same as before the crisis
In 2009, the aggregate remuneration of the members of the board of directors and of the executive management of the 49 companies included in Ethos' study increased by 21% to CHF 1.27 billion. While the increase was 73% in the financial sector, it was just 2% in the other sectors. On average, each member of the executive management received CHF 3 million in 2009. The Chairmen of the board were paid CHF 1.9 million on average while the other non executive directors CHF 300'000.
Insufficient transparency
Certain awards from share based long term incentive plans have important upward potential, allowing several executives to make substantial gains from the exercise of previous years' grants. For example, in 2010, Brady Dougan, the CEO of Credit Suisse, received CHF 70 million at the end of a five year incentive plan started in 2004. As there is no obligation to disclose the remuneration received from past years' grants in Switzerland, deferred compensation remains most often undisclosed.
Too much variable pay, too little performance pay
The variable part of the remuneration of executive management is very high, in particular in the financial sector where it reaches 80% of total pay in large caps (SMI companies). The structure of the remuneration (fixed pay, annual bonus, long term incentives) became more complex by the introduction of performance based long term incentive plans. However, the major part of the amounts paid, still does not depend on the achievement of performance conditions tested over several years, which is not best practice.
More «Say on Pay» votes
As of today, 21 Swiss listed companies put their remuneration report or system to the advisory vote of the shareholders. This is in response to the “Say on Pay” resolutions tabled by Ethos and eight pension funds* in 2009 and 2010.
Ethos calls all companies to proceed to an advisory vote of their remuneration report or system. To this end, Ethos wrote a letter to the companies that have not implemented such a vote yet. In case of negative response, Ethos will continue tabling new resolutions at the 2011 general meetings. In parallel, Ethos will intensify the dialogue regarding transparency and structure of remuneration with the 100 most important listed companies, on behalf of 48 pension funds participating in the Ethos Engagement Pool programme.
* Aargauische Pensionskasse, Caisse d'assurance du personnel de la Ville de Genève et des Services industriels de Genève (CAP), Caisse de pensions de la République et Canton du Jura, Caisse de prévoyance du personnel des établissements publics médicaux du canton de Genève (CEH), Caisse de prévoyance du personnel enseignant de l'instruction publique et des fonctionnaires de l'administration du canton de Genève (CIA), Luzerner Pensionskasse, Pensionskasse Post, Pensionskasse Stadt Zürich.
