UBS Raises Ermotti 2013 Pay 21% Before Shareholders’ Say

UBS AG boosted Chief Executive Officer Sergio Ermotti’s compensation by 21 percent to 10.73 million Swiss francs ($12.3 million), the last time the decision will fall exclusively on the bank’s board as Swiss governance rules change.

Ermotti’s total pay of 10.73 million Swiss francs ($12.3 million) for last year included variable compensation and benefits of 8.23 million francs and a salary of 2.5 million francs, the Zurich-based company said today. He was paid 8.87 million francs for 2012, including the same salary.

Next year shareholders will have the final say on UBS executive pay under a Swiss rule designed to curb excessive compensation that will apply to all publicly-traded Swiss companies. The government gave companies until next year to adjust their articles of association when it approved the initiative against “fat cats,” proposed by Thomas Minder, the head of herbal toothpaste company Trybol AG, last March.

Investment-banking head Andrea Orcel’s pay surpassed Ermotti’s, making him the highest-paid executive at UBS with 11.43 million francs in remuneration. UBS didn’t disclose Orcel’s total pay for 2012. The compensation for the group executive board amounted to 82.4 million francs in 2013.

Adoption Timetable

UBS will ask shareholders to approve a plan for adapting to the new pay rules at an annual meeting in May, it said in an e-mailed statement. Shareholders will vote on board member compensation in 2015, UBS said.

UBS’s decision to give shareholders say over compensation comes as Swiss companies map out different methods for complying with the rule.

UBS increased the 2013 total bonus pool by 28 percent to 3.2 billion francs as it reported annual net income of 3.17 billion francs. Ermotti, 53, said last month the bank wanted to “normalize” compensation after a “very strong year” in which the bank returned to profit to increase competitiveness.

UBS posted a loss for 2012 after reorganization charges and a fine of about $1.5 billion for trying to rig global interest rates including the London interbank offered rate. The Hong Kong Monetary Authority said today traders at the bank unsuccessfully tried to rig Hong Kong’s benchmark interest rate between 2006 and 2009 as well. The regulator asked UBS to take disciplinary action against the employees responsible.

European Rules

European Union legislation that caps the amount of variable compensation in proportion to fixed pay may require UBS to further change its compensation structure, the bank said. Changes already made to the bank’s pay structure increase the risk of key employees deciding to leave, UBS said.

UBS fell 3.7 percent to 17.70 francs in Zurich trading, trimming gains over the past 12 months to 15 percent. The Bloomberg Europe Banks & Financial Services Index fell 1.9 percent today, and rose 8.6 percent since last March.

Chairman Axel Weber, 57, received 6.07 million francs in 2013 pay. His remuneration included 4.01 million francs in variable pay and benefits. UBS revised the framework for the chairman’s compensation for 2014, capping his total pay at the current level of 5.7 million francs, excluding benefits and pension. It will raise the cash component to about 60 percent.

Top Dealmaker

Investment bank head Orcel, 50, received 24.9 million francs in deferred cash and deferred stock, both vested over a three year period, on joining UBS in 2012. He joined from Bank of America Corp. to co-head the investment bank with Carsten Kengeter. The Italian banker assumed the sole responsibility for the division later that year when UBS decided to scale down fixed-income trading.

Orcel spent 20 years at Bank of America Corp.’s Merrill Lynch before joining UBS and was among the biggest dealmakers when the U.S. firm was independent. The awards he received from UBS in 2012 replaced those that he forfeited at Bank of America, UBS said last year.

Part of UBS executives’ pay consists of bonds that can be wiped out if the Zurich-based bank’s capital falls below a predefined level. UBS this year raised the threshold at which members of its executive board lose their awards, exposing them to more risk than other employees and investors. Ermotti said in February the higher threshold for executive board members is a “sign of confidence.”

Contingent Capital

UBS and Credit Suisse Group AG, Switzerland’s second-biggest bank, are both using contingent capital bonds as part of their compensation to boost capital ratios, align the interests of employees and shareholders and give incentives to limit risk-taking. UBS said last month it would pay about 500 million francs in bonds that will be written off if the bank’s common-equity ratio falls below 7 percent or the company needs a bailout. For the executive board members, that trigger was raised to 10 percent.

UBS decided to increase the threshold of total compensation above which it defers part of the bonuses into future years to 300,000 francs from 250,000 francs previously, the bank said last month. The company also said it would use a range of deferral rates compared with a flat rate previously.

Barclays Plc said earlier this month CEO Antony Jenkins was paid 1.6 million pounds ($2.68 million) for 2013. Last month he said he would turn down his 2013 bonus after regulatory penalties and lawsuits continued to impose costs of the bank.

Lloyds Banking Group Plc CEO Antonio Horta-Osorio received 7.48 million pounds in total compensation for 2013, up from about 3.4 million pounds in the year-earlier period.

Before it's here, it's on the Bloomberg Terminal.