Ethos Survey on Executive Remuneration: Pay Raises in the Financial Sector


ECGS Swiss Partner Ethos Foundation published its survey of the 2010 board and executive remuneration in the 48 largest Swiss listed companies (comprising the SMI and SMIM indexes).

The amount  paid to the boards and the executive management of the Swiss listed companies included in the financial sector rose by 8%, while it remained stable in the other sectors.

It also shows that 56% of the companies under review implemented an advisory vote on their remuneration report at their 2011 annual general meeting, up from 38% in 2010. Despite this increase, self-regulation does not seem to function adequately. ECGS therefore considers with Ethos that Swiss company law, the Swiss code of best practice and the Corporate Governance Directive of the SIX Swiss Exchange should be urgently revised.

Variable remuneration is not always variable

In 2010, the members of the executive management of the 48 largest Swiss listed companies received on average CHF 3.1 million. The chairmen of the board received CHF 2.4 million, while the other members received CHF 300'000. The aggregate remuneration of the boards and executive management of the companies included in the survey was CHF 1.29 billion (+ 2% on 2009). There was a 8% increase in the financial sector, while the remuneration in the other sectors remained globally unchanged. The evolution of the total remuneration during the past six years shows a link between remuneration and performance in the financial sector, but not in the other sectors (see graph).

Significant raise in base pay

The remuneration paid in the financial sector is twice as high as the one paid in the other sectors. In the companies of the financial sector included in the survey, the members of executive management received an average remuneration of CHF 4.7 million, compared to CHF 2.5 million for the other sectors.

A key feature of the 2010 executive remuneration is the general increase of the base salaries of the companies operating in the financial sector. On average, base salaries rose by 15% reaching CHF 900'000 per person. For the CEOs in particular, the increase is 66% on average. The base salaries remained however stable in the other sectors. Generally, the variable part of remuneration largely exceeds 50% of total remuneration. The highest variable remuneration (78% of total on average) was observed in the SMI companies of the financial sector.

Say on Pay: More negative votes

56% of the companies under review (27 companies) have proposed, at their 2011 annual general meeting, an advisory vote of their remuneration system or report, up from 38% in 2010. The rate of opposition rose to more than 16% in 2011 (up from 11% in 2010). For the first time in Switzerland, a remuneration report was not approved. In fact, the remuneration report of Weatherford International received only 44% approval. The remuneration became the most contested issue at the 2011 general meetings of Swiss companies.

Swiss law and the Swiss code of best practice should be urgently revised

Despite the increase in the number of companies that have established a “Say on Pay”, many still refuse to do so. This shows that self regulation in the field of executive remuneration does not function adequately. Most companies argue that they do not want to change their practice as long as this is not imposed by law. According to Dominique Biedermann, executive director of Ethos Foundation, “Our laws, codes and directives are no longer adapted to the current situation with regard to executive remuneration. It is therefore urgent to proceed with the revision of Swiss company law, the Swiss Code of best practice, as well as the Directive on Corporate Governance of the SIX Swiss Exchange.”