UBS AG Chief Executive Officer Sergio Ermotti pledged to address the concerns of investors planning to vote against the remuneration policy of Switzerland’s biggest bank at its annual general meeting in Zurich tomorrow.
“The reality is that we really need to keep up the dialogue with shareholders and listen to what they have to say and understand their concerns and address them to the maximum way possible,” Ermotti said today in a Bloomberg television interview.
Some investors plan to vote against UBS’s pay proposals because the Zurich-based bank’s board uses too much discretion, rather than performance-related criteria, to decide bonuses. UBS cut its 2011 bonus pool by 40 percent to 2.6 billion Swiss francs ($2.8 billion) as profit dropped 45 percent after a $2.3 billion loss from unauthorized trading in September.
“We’re voting against the remuneration report,” said George Dallas, London-based head of corporate governance at F&C Management Ltd. “They funded a bonus we thought was excessive given their performance. The fraud incident demonstrated weaknesses in their controls.”
Shareholder scrutiny into compensation for top managers is increasing. Citigroup Inc. 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 CEO Robert Diamond will forgo about 11 percent of his total paycheck if he fails to meet profitability goals after investors opposed his package.
Bonuses Too High
Ethos, a Geneva-based foundation that owns UBS stock and advises other institutional shareholders, and ISS, a New York-based adviser to 1,300 firms, are objecting to the Swiss bank’s pay proposals for the second consecutive year.
“Variable compensation for top executives is too high,” said Vinzenz Mathys, a spokesman for Ethos. “It’s important to give a very clear signal to the board by voting no.”
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.
“We do understand that shareholders are not happy about what happened in the last couple of years,” said Ermotti, who joined UBS last April and took over as CEO after Oswald Gruebel resigned. Ermotti received 6.35 million francs last year, including a 4.6 million-franc bonus, 88 percent of which was deferred into future years.
Kaspar Villiger, who plans to step down as UBS chairman tomorrow, said on April 18 that the bank will base Ermotti’s bonus in part on the progress he makes in restoring the firm’s reputation. Compensation will be based on a number of qualitative as well as performance-based criteria, and client and staff satisfaction will also play a role, Villiger said.
About 27 percent of Barclays’s shareholders and 32 percent of Credit Suisse Group AG investors last week voted against the companies’ remuneration plans. About 32 percent of UBS shareholders last year voted against the company’s compensation report in a consultative vote.
UBS reported a 54 percent decline in first-quarter profit earlier today after a charge related to the company’s own debt led to a loss at the investment bank.