Ethos intervenes at today's annual general meeting to ask the board of directors of the largest Swiss bank to substantially reduce the remuneration of its senior executives in order to avoid excessive risk-taking that could jeopardise Switzerland's financial stability.
At CHF 14.4 million for 9 months of activity, or even CHF 18.4 million if the shares received are valued at 100% of their value, the remuneration of the CEO of UBS far exceeds the limits set out in Ethos’ voting guidelines. Sergio Ermotti, who returned to UBS on 5 April 2023 following the emergency takeover of Credit Suisse, will even be able to earn more than CHF 20 million per year as soon as 2024, following the board's decision to increase the limit on his variable compensation from five to seven times his base salary.
The size of UBS after the acquisition of Credit Suisse also represents a systemic risk for Switzerland. In this context, the Ethos Foundation believes that it is essential to limit variable remuneration in order to avoid reckless risk-taking, as was the case during the 2008 financial crisis and the recent collapse of Credit Suisse. Ethos therefore recommends to vote against remuneration proposals at the annual annual general meeting on 24 April, for the following reasons:
- The shares granted as long-term variable compensation to the members of management have been valued in a totally arbitrary manner at only 50% of their value at the time of their allocation, whereas last year they were valued by an independent company at 71.5% of their market price. As a result, the maximum remuneration that the members of management can receive after a performance period of three to five years can be much significant than the amount disclosed in the remuneration report;
- The performance criteria for this long-term plan have been significantly reduced compared to last year. The bank must now achieve a return on tier 1 capital (RoCET1) of 10% over three years for members of the Executive Board to receive 100% of the shares allocated to them, whereas this threshold was previously set at 18%;
- The bank proposes to revise the remuneration system so that the CEO's variable component can reach seven times his base salary, compared to a maximum of five times currently. Given that his annual base salary (CHF 2.5 million) is already one of the highest in the sector, his total remuneration could reach CHF 20 million per year, and even CHF 28.75 million if the bank continues to value its shares at a 50% discount.
Although 2023 was an exceptional year for UBS in many respects, Ethos considers that the remuneration paid to the management and the board of directors is excessive. In 2023, the CEO received the equivalent of approximately 78 times the average salary paid to UBS's 112’842 full-time employees (USD 202’433).
Share buy-backs incompatible with the "too big to fail” principle
Ethos also questions the appropriateness of the USD 2 billion share buy-back programme launched by UBS on 3 April and the bank's decision to simultaneously ask the shareholders for conversion capital to cover the issue of equity convertible bonds, which proved to be particularly costly (more than 9% annual coupon for the AT1s issued in November 2023).
While Ethos fully supports the strengthening of the capital base of systemic banks, Ethos considers that UBS should maintain a higher hard capital base and further reduce the risk-weighted assets of its investment bank rather than asking for additional capital to cover high-coupon convertible instruments.
Lack of transparency and ambition in the sustainability report
Ethos also recommends that shareholders vote against the sustainability report. Although UBS has made progress in terms of non-financial reporting, it still does not publish all of its greenhouse gas emissions related to its investments and financing activities. Furthermore, unlike other major international banks, UBS has not committed to divest from companies active in the coal and unconventional fossil fuel sectors or stop financing them.
