-
Executive compensation has been an important topic in the investor community for over a decade. Unfortunately, shareholders have gone largely unheard and the issue has been little more than a blip on the radar of corporate America.
May 1 -
Shareholder dissent over pay practices grew a bit in 2012. Outright majorities rejected executive compensation plans in advisory votes at three of the 132 institutions covered in this sortable table, compared with one in 2011. Meanwhile, the percentage garnering less than 75% support grew to 9.8% in 2012 from 9.1% in 2011.
May 1
UBS AG (UBSN) shareholders protested against compensation and management actions after Switzerland's biggest bank suffered a $2.3 billion loss from unauthorized trading.
Almost 37 percent of shareholders voted against the bank's compensation report for 2011 at the annual meeting in Zurich today. More than 39 percent opposed discharging members of the executive board and board of directors of responsibility for their actions in 2011, while 8 percent abstained.
The approval rate of less than 53 percent for management actions compares with about 98 percent at last year's meeting. Only once did UBS shareholders reject management discharge: when they voted in 2010 on actions for 2007, the year the Zurich- based bank amassed billions of losses related to subprime mortgages as managers were too slow to react to the unfolding crisis.
UBS shareholders also rejected the bank's proposal today to increase the amount of conditional capital, or how many new shares it can issue, to 300 million shares from 148.6 million previously and to permit the use of this capital to satisfy awards granted employees under share plans.
Chief Executive Officer Sergio Ermotti told shareholders today that UBS has taken measures to improve its controls following the unauthorized trading loss to ensure the risk of a similar event is "as small as possible."
September Trial
"Should this happen again, however, such activities must be detected and stopped swiftly," Ermotti said in a speech. "We improved internal monitoring and controls. We replaced or cut pay of the people that made serious mistakes or acted unreasonably."
UBS is bracing for Kweku Adoboli's trial in September after the former trader at the firm's investment bank in London pleaded not guilty in January to charges of fraud and false accounting. The U.K. and Swiss financial regulators in February started formal enforcement actions against UBS over the loss.
"The legal proceedings in September are likely to generate unfavorable headlines," said Ermotti, 51. "If we are then confronted with the details, I want to be able to say: these details describe a situation in the past."
UBS's investment bank will only be able to contribute toward the company's main business of serving wealthy clients if it has risks under control, Ermotti said. That doesn't mean the company will "avoid risk at any price."
Compensation Criticism
The loss from unauthorized trading uncovered in September led to the departure of CEO Oswald Gruebel, 68, and the appointment of Ermotti as his replacement at Switzerland's biggest bank. Shareholders applauded as Ermotti thanked Gruebel for rebuilding UBS, though some criticized the personnel changes the bank has gone through over the past years.
"The personnel carousel is turning so fast at UBS that one gets dizzy looking at it," shareholder Rene Zeyer told more than 3,400 fellow investors gathered at the meeting. "Another investment banker took the helm. Should we memorize his name? I don't think so."
He criticized the compensation that Ermotti got for 2011 and the pay package UBS promised to former Bundesbank President Axel Weber, 55, who was elected to the board of directors today to succeed Kaspar Villiger, 71, as chairman.
Ermotti, who first joined UBS on April 1 as the head of business in Europe, Middle East and Africa, received 6.35 million francs ($6.9 million) for 2011, including a 4.6 million- franc bonus. Weber will be getting annual compensation of 2 million francs and 200,000 UBS shares blocked for four years. He will also get a one-time payment upon election to the board of 2 million francs and 200,000 UBS shares blocked for one year.
'Welcome Gift'
Shareholder Brigitta Moser-Harder also criticized the "welcome gift" for Andrea Orcel. Orcel, a top Bank of America Corp. dealmaker, is joining UBS in July to co-head the investment bank with Carsten Kengeter. Villiger said Orcel will receive compensation for the amount he had to give up because he's leaving Bank of America, adding that he can't comment on the amount.
UBS got approval of 60 percent of shareholders on its 2011 compensation report in a consultative vote. That compares with 64 percent approval on compensation at last year's meeting. Weber, speaking to reporters after the meeting, pledged to "very seriously" consider compensation issues.
The bank's shares declined 27 percent in 2011, compared with a 32 percent drop in the 43-company Bloomberg Europe Banks and Financial Services Index.
Profit Drop
UBS isn't alone in feeling investors' ire. Aviva Plc (AV/) shareholders voted down the U.K. insurer's compensation report today with a 54 percent majority. Citigroup Inc. shareholders rejected the bank's executive pay plan on April 18 amid criticism it lets CEO Vikram Pandit collect millions of dollars in rewards too easily. Barclays Plc CEO Robert Diamond will forgo about 11 percent of his total pay if he fails to meet profitability goals after investors opposed his package. About 27 percent of Barclays's shareholders and 32 percent of Credit Suisse Group AG investors last week voted against remuneration plans.
UBS reported yesterday a 54 percent drop in first-quarter net income to 827 million francs, after a charge related to the company's own debt and a 17 percent drop in revenue led to a loss at the investment bank. UBS is shrinking its investment bank by almost half as the European sovereign-debt crisis and stricter capital rules hurt profits.
The economic situation remains a challenge for the Zurich- based bank, Villiger, a former Swiss finance minister, told shareholders today.
"The outlook may have brightened recently, but the improved conditions in the markets seem not to be sustainable," he said. "People in the industrialized nations will continue to pay a high price for the frivolous financial policies of their politicians for some time to come."
'Great Future'
Weber, speaking to shareholders, said UBS has a "great future," adding that the bank that once was "Switzerland's icon" has to move in that direction again. He will continue with Ermotti to implement UBS's strategy, which has started showing results, he said, adding that he has a "long-term horizon" for involvement with the bank.
He told reporters that he supported the appointment of Ermotti as CEO after Gruebel stepped down as the only viable candidate from within UBS with experience in investment banking. There is no distance or difference between him and Ermotti, Weber said. He also said the co-head structure of Kengeter and Orcel at the top of the investment bank makes sense as they'll be responsible for different areas of the business.
