UBS shareholders set to rebel over pay

Story highlights

  • Investors are preparing to confront the management of UBS on Thursday
  • A significant number plan to vote against the Swiss bank's 2011 pay award

A significant number of investors are preparing to confront the management of UBS on Thursday by voting against the Swiss bank's 2011 pay award and denying executives formal approval of their actions.

The bank's share price dropped 28 per cent last year and it lost $2.25bn in a rogue trade in London that caused the largest unauthorised trading loss on record in Britain. For the same period, the bank chose to pay 12 members of its executive board SFr70.1m ($77.1m) compared to SFr91m in the year before.

That has prompted advisory groups and institutional investors including ISS, Ethos, F&C and Hermes Equity Ownership Services to rebel against what they see as a lack of disclosure on how pay is calculated and a high proportion of variable pay.

George Dallas, director of corporate governance at F&C Management, which owns a 0.2 per cent stake in the bank, said: "UBS's bonus pool for its executive board is still too high given the trading scandal, decreasing profits and a drop in market value in the past year."

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Natacha Dimitrijevic, head of European corporate governance at Hermes which represents 25 clients with a combined stake of 0.15 per cent, said it was worried about a lack of specific performance criteria for UBS bonuses. "Without assurances that large discretionary payouts can't occur we cannot vote in favour of the pay scheme," she said.

Although the exact voting intentions of shareholders will not be clear until the annual meeting, some investors say they expect the bank to face a more forceful vote than at fellow Swiss group Credit Suisse, where more than a third who voted refused to back its pay award.

The discontent among UBS shareholders also goes beyond the recent upsurge in investor activism expressed in non-binding votes on pay at other big banks including Citigroup and Barclays.

A large number of shareholders are expected to refuse to give management a clean bill of health for 2011 because of the trading scandal and UBS's admission that the incident revealed "shortcomings" in its risk management. Under Swiss law, an investor forfeits most rights to sue management for actions in a given year by formally voting to "discharge" it of responsibility for that period.

The trading scandal has triggered management changes including the replacement of chief executive Oswald Grübel by Sergio Ermotti last September. At the annual meeting, investors are being asked to elect Axel Weber, former Bundesbank president, to succeed Kaspar Villiger, outgoing chairman.

Two years ago shareholders voted against discharging the former management of responsibility for 2007, the year before the credit crisis brought the bank to the brink of collapse. UBS has already been berated by a strong minority of investors over its pay structures for two consecutive years.

Last year, more than a third who voted refused to back the pay report and in 2010 more than 45 per cent of investors declined to endorse it.

ISS, the influential US proxy firm and Ethos, the Swiss activist investor that advises domestic pension funds both recommended their clients vote against the discharge of the management and the remuneration report.

"ISS continues to have concerns about lack of safeguards against excessive pay and poor pay practices, lack of disclosure in key areas, and certain aspects of UBS's remuneration system," the advisory group said in a recent note to clients.