“The idea behind this is that you try to evaluate the CEO according to what’s necessary for executing the company’s strategy in the long term,” Villiger said in an April 18 interview in Vienna. “There are nine criteria in total, of which some shall be qualitative,” he said. “Reputation is one of them. It will count more than one ninth.”
Villiger, whose tasks include developing recommendations for the CEO’s pay with the compensation committee, said the bank won’t assess Ermotti’s performance by profit alone, but will also include targets for boosting capital ratios and cutting risk-weighted assets. Client and staff satisfaction will also play a role, he said.
Ermotti’s predecessor, Oswald Gruebel, left last year after the bank uncovered a $2.3 billion loss from unauthorized trading at the investment bank in September. Gruebel, 68, and Villiger, 71, tried to rebuild the bank’s image after a near bankruptcy in 2008 and the unprecedented delivery of data about wealthy clients to the U.S. to avoid a criminal indictment.
While many of the world’s largest banks, including JPMorgan Chase & Co. and Deutsche Bank AG, are curbing pay as they grapple with shrinking revenue, UBS cut bonuses for last year at a rate that was among the steepest. The lender reduced its bonus pool for 2011 by 40 percent as net income dropped 45 percent on losses at its investment-banking division.
May 3 Meeting
Shareholder scrutiny into compensation for top managers is increasing. Citigroup Inc. (C) shareholders rejected the bank’s executive pay plan on April 18 amid criticism it lets CEO Vikram Pandit collect millions of dollars in rewards too easily. Barclays Plc (BARC) CEO Robert Diamond will forgo about 11 percent of his total paycheck if he fails to meet profitability goals after investors opposed his package.
Villiger will step down at UBS’s May 3 annual shareholder meeting and former Bundesbank President Axel Weber is poised to succeed him. Villiger said Ermotti helped develop the performance criteria and he hoped UBS could set an example with them.
“I would find it important that this would be done by more people,” he said. “The CEO is very much in agreement with this.”
Ermotti is convinced that management of the bank over several executive levels should be evaluated according to such criteria, in addition to the financial indicators, to ensure the sustainable success of the company, said Michael Willi, a spokesman for UBS.
Ermotti, 51, joined UBS last April and took over as CEO after Gruebel resigned. He received 6.35 million francs ($6.9 million) last year, including 1.39 million francs in base salary, Zurich-based UBS said in its 2011 annual report, published last month.
About 88 percent of Ermotti’s 4.6 million-franc bonus was deferred into future years, the bank said. Gruebel, who returned UBS to profitability after the bank posted the biggest loss in Swiss corporate history in 2008, waived any bonus entitlement for each of the three years he was in office.
UBS’s new rules will not rely only on quantitative criteria that are easily measured, Villiger said.
“There will have to be a discretionary element,” he said. The CEO’s impact on the bank’s reputation, for instance, would be in part assessed by considerations such as media coverage. “But there will be an element of judgment, which the board will have to make together with him,” he said. “It can’t be done just by a computer program.”
UBS revamped its compensation system in late 2008. The changes implemented then included the introduction of claw-back provisions to allow taking back parts of bonuses for certain executives and staff in the years after the award. The bank also made fixed salaries a bigger part of total pay.
The existing framework allows “on one hand, to motivate our employees by rewarding strong performance, and on the other hand, to withdraw or reduce incentives where performance has been weak or where employees act against the interests of the firm,” the head of UBS’s Human Resources and Compensation Committee, Ann Godbehere, said in the lender’s annual compensation report for 2011. “We will keep our framework under review to ensure that it continues to meet our key goal of aligning employee and shareholder interests,” she said.
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