Ethos Study on Executive remuneration: Positive impact of ? Say on Pay ?

The aggregate board and executive pay in the companies of the financial sector fell by 23% in 2011, while it rose by 5% in the other sectors. Ethos' study of the 2011 board and executive remuneration in the 100 largest Swiss listed companies also shows that 49 companies put their remuneration report to the advisory vote of the shareholders in 2012. Despite the positive impact of these votes on the transparency and structure of board and executive remuneration, more than half of the companies still do not abide by self regulation. It is therefore urgent to reinforce shareholder rights: Ethos supports the Swiss Parliament's counter-project to the popular initiative entitled “against excessive remuneration”.


The Ethos Foundation has published its 2011 Study on board and executive remuneration in the 100 largest Swiss listed companies.


Remuneration decreases in the financial sector


In 2011, the aggregate board and executive remuneration in the financial sector companies fell by 23% while it grew by 5% in the other sectors. Overall, remuneration was down 6% compared to 2010.


The chairmen of the board received on average CHF 1.1 million in 2011 (down 17% on 2010). The other members of the board received on average CHF 210'000 (-4%). The CEO's 2011 average pay was CHF 3.2 million (-6%), while the other executives received on average CHF 1.8 million (-7%). Despite these decreases, the levels of remuneration remain high: The top 20 highest paid in executive management received more than CHF 5 million each, while the top 20 highest paid chairmen received more than CHF 1 million each.


Positive impact of «Say on Pay» on transparency and dialogue


Progress was slow in terms of “Say on Pay votes”: In 2012, only 49 companies implemented such a vote, which is only four more than last year. However, the contestation rises year after year. In 2012, the average opposition to the remuneration report was 14.4%, up from 13.6% in 2010. At the same time, Ethos notes an improvement in the transparency of the remuneration reports, as well as a more open attitude toward dialogue in the companies that submit their remuneration report to shareholder vote.


Popular initiative «against excessive remuneration»: Ethos supports the counter-project of the Swiss Parliament


Convinced that regulation is necessary to enhance shareholder rights, Ethos supports the counter-project of the Swiss Parliament which was established in response to the popular initiative «against excessive remuneration» (flyer).


Only the counter-project requires listed companies to prepare a remuneration report that should be submitted to the shareholder vote. This allows to have a say, not only on the amount of executive remuneration, but also on the remuneration system, including the bonus and incentive plans which are often the sources of high payouts for executive management. In addition, the shareholders can submit resolutions on the agenda of general meetings to amend the remuneration system.


Rapid entry into force


The counter-project proposes a balanced distribution of competences between the board of directors and the shareholders. The shareholders' general meeting will have a binding vote on the envelope of board fees. The remuneration of the executive management will be of the board's remit and described in the remuneration system that will have to be approved by the shareholders in an advisory manner. Following amendment of the articles of association, however, the shareholders' vote could become binding.

Eventually, the counter-project will lead to a rapid enhancement of shareholder rights with regard to board and executive remuneration, as it will be enacted immediately by force of law. On the contrary, the initiative sets a series of principles to be included in the Swiss Constitution, which will subsequently have to be converted into a set of regulations following a long process of elaboration of new laws.


7 September 2012