Ethos, Proxinvest swiss partner within the European proxy firm ECGS, simultaneously publishes its first report on the implementation of the Minder initiative and its 2013 board and executive remuneration study. In general, the companies have become more transparent with regard to their remuneration systems. However, the ordinance of application of the Minder initiative (ORAb) leaves it to the board to propose the modalities of the vote on the remuneration amounts. These modalities are often in contradiction with the spirit of the Minder initiative. In particular, Ethos and many other shareholders cannot accept prospective votes on variable remuneration without adequate safeguards set in the articles of association. This explains why the votes on the statutory modifications related to the ORAb were often the cause of much debate this year.
The 2014 general meetings of Swiss listed companies were dominated by the entry into force on 1 January 2014 of the ordinance against excessive remuneration (ORAb), following the approval by the Swiss people of the Minder initiative in March 2013. The ORAB requires that by the end of 2015 at the latest, the companies must have streamlined their articles of association and submitted the amounts of board and executive remuneration to a binding vote of the shareholders. Halfway to the deadline, Ethos publishes a survey on the implementation of the ORAb by the 150 largest Swiss listed companies.
Of the 136 companies subject to the ORAb, 96 (70%) have already put to the vote various amendments to the articles of association, namely those that fix the vote modalities for board and executive remuneration. However, only 29 companies (21%) have already proposed at the 2014 AGM a binding vote on the amount of board and executive remuneration.
Circumventing the spirit of the Minder initiative
The average rate of approval of the amendments to the articles of association was only 88%, due to the fact that several companies have proposed amendments that circumvent the spirit of the Minder initiative which is not always well perceived by the investors. In particular:
– The vote modalities often stipulate prospective votes for the variable remuneration. A maximum amount is put to the vote at the beginning of the period, instead of retrospectively, at the end of the period, when the results of the companies are known.
– Following the prohibition of severance payments, almost half of the companies have foreseen the possibility to include in the executive contracts remunerated non-compete clauses.
– More than 33% of the companies could pay to their board members performance-based fees instead of solely fixed fees.
The transparency of the annual bonus and incentive plans should be improved
Ethos also published its annual report on board and executive remuneration in Swiss listed companies. In 2013, the remuneration in the 100 largest Swiss listed companies slightly increased (+2%). This is mainly due to the financial sector where the remunerations were up 8%. It is interesting to note that this increase is slower than the increase in both the market cap and the net income of the companies reviewed.
It appears that the obligation to submit the remuneration to shareholder vote is an incentive for many boards to increase transparency and become more vigilant with regard to their remuneration structure. There is however still much room for progress. For example, approx. 40% of the companies under review still refuse to publish the maximum bonus. With regard to long term incentive plans, half of the companies do not publish the precise performance targets for vesting.
