The remuneration of Directors and executive management in listed companies is a matter of serious concern to shareholders. Prompted by a number of cases of excessive remuneration paid by Swiss listed companies, Ethos, as a long-term institutional investor, conducted an in-depth study of executive pay among Switzerland’s 100 largest listed companies.
The study has three complementary parts. The first examines remuneration policy in the perspective of international best practice, reviewing successively disclosure, policy structure and competencies with regard to establishing remuneration.
The second part analyses actual remuneration on the Swiss market in 2005. The results are presented in three sections. The first looks at the level of remuneration disclosure of Swiss listed companies. The second examines the remuneration structure, with special emphasis on its components, the amounts and types of remuneration granted and the link between pay and performance. The third analyses the competencies with regard to setting executive remuneration, in particular the existence and the composition of a separate and focused remuneration committee.
Finally, the third part assesses the state of executive pay in the main listed companies in Switzerland. In this context, Ethos also presents the expectations of long-term institutional investors committed to the respect of international best practices on remuneration.
Main results
- The remuneration disclosure of the companies analysed rarely exceeds the minimum required by the SWX Swiss Exchange Corporate Governance Directive (CGD). This falls short of international standards and does not allow shareholders to form an informed opinion of the remuneration policy.
Ethos calls on listed companies to enhance disclosure by publishing more than the minimum amount of information required under the CGD.
- The analysis of the remuneration structure reveals that the level of remuneration is closely related to company size. The average pay of executive directors and executive management in the 100 companies amounted to CHF 2.2 million per person and the average pay of non-executive directors to CHF 230,000 per person.
Ethos asks companies to apply the rules of international best practice, in particular by strengthening the link between remuneration and performance, in order to genuinely align shareholder and executive interests.
- In Switzerland, the remuneration of Board members and executive management is determined by the Board of Directors itself.
Ethos would like the annual meeting of shareholders to be able to cast an advisory vote on the remuneration policy for listed company Board members and executive management. This practice is recommended by the OECD and functions very well in several European countries, including the United Kingdom, the Netherlands and Sweden.
