January 23, 2009 - 6:02 PM
Major firms agree to vote on
AND EXECUTIVE PAY
Executive pay at
listed companies has become a source of major concern for
shareholders in recent years.
Ethos says that a number of practices are a "far cry" from the rules
of good governance.
It points out that an excessive remuneration policy is an
undesirable cost that has a strong negative impact on company
Ethos also says it can also greatly influence the risk-taking
behaviour of some managers and, indirectly, the company's strategic
It is therefore "perfectly legitimate" for shareholders to have a
say on the basic principles and mechanisms of remuneration policy.
Ethos resolution text
Proposed amendment to the Swiss articles of incorporation:
"The Board of Directors shall establish a remuneration report each
year for the annual general meeting. The report shall present the
remuneration system and payments made during the previous financial
year to members of the Board and members of executive management."
"Each year, the general meeting of shareholders shall have an
advisory vote on the remuneration report."
Shareholders of three major Swiss companies are to have a right to express
their views on the controversial issue of executive pay – a first in
The Ethos Foundation for Sustainable
Development in Geneva says that food giant Nestlé and the country's two big
banks, UBS and Credit Suisse, have agreed to an advisory vote on management
The votes will be advisory because
currently Swiss law does not permit a binding vote.
However, two other firms asked last
September by Ethos and eight pension funds to introduce a "Say on Pay"
measure for shareholders - engineering group ABB and the Basel
pharmaceutical concern Novartis - have refused to introduce the measure.
Executive pay, considered excessive by
many, has been a thorny issue in Switzerland for years and has been
exacerbated by the current global financial crisis.
Ethos, which currently is composed of 78
institutional investors, announced the news on Friday saying it was a move
in the right direction.
« We are very satisfied
with this first step... »
Dominique Biedermann, Ethos
"We are very satisfied with this first
step... that these companies have accepted to put their remuneration reports
to a vote," Ethos' managing director Dominique Biedermann told swissinfo.
"Now obviously each of these companies
needs to communicate in detail its remuneration system to the shareholders
so that they can decide if they can accept it."
He explained that it was important that
Swiss companies had understood that rules of good governance had developed
significantly over the past years.
"Shareholders have the right now to have
their say on the problem issue of remuneration and we are very satisfied
that these companies have accepted to do it spontaneously; it's proof that
self-regulation can function even in the delicate area of pay."
Biedermann feels that such a consultative
vote is a direct way for shareholders to have their say on the pay issue.
"If a third of the shareholders are opposed
to the remuneration strategy of the board of directors it is an important
signal and companies will automatically take note and must change their
Biedermann said its September resolution
would still be maintained on the agenda of the annual meetings of Novartis
(February 24) and ABB (May 5).
"We deeply regret that Novartis and ABB
have refused to support our resolution, which calls for more rights for
shareholders on the pay issue," he commented.
Ethos wants Switzerland's articles of
incorporation to be changed to allow a separate vote on executive pay. It
has also been seeking more details on the remuneration package of executives
and board members, including more transparency of performance criteria.
swissinfo, Robert Brookes
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