Following several years of shareholder discontent regarding pay practices, UBS has hit the road to gather feedback on how to shore up its executive compensation plans against mounting pressure from investors and regulators.
The Financial Times reports that Axel Weber, UBS’s newly appointed chairman, has been gathering investor feedback on how to improve compensation policies following the results of the general meeting where only 60% of shareholders voted in favor of the bank’s compensation report. Apparently the third time is the charm, as shareholders registered significant disapproval with the bank’s executive compensation scheme at the past two annual meetings as well.
While the bank instituted several changes to its compensation structure following the 2010 meeting, those alterations clearly did not fully assuage concerns, as indicated by the continued low level of shareholder support in 2011. It was therefore deeply troubling to Glass Lewis that the bank’s compensation report for fiscal year 2011 failed to indicate any noteworthy changes over the policy from the previous fiscal year, and we were, frankly, unsurprised by the 2012 vote results.
In our 2012 Proxy Paper, we reiterated several notable concerns which we have repeatedly expressed over the past several years regarding the underlying structural issues: (i) annual bonus amounts were discretionary at the individual level, not linked to any particular performance metrics, uncapped, and comprised a very high portion of total compensation; (ii) these bonus amounts ultimately determined the payouts for long-term incentives; and (iii) executive compensation was only subject to any downside risk if the Company or business unit records a loss, return on equity is negative, or the Company performs well below its peers.
With this in mind, the news that UBS is taking steps to engage with stakeholders to bring compensation practices in line with its peers is reassuring. Not be outdone by recent reforms announced by Deutsche Bank, UBS’s board will debate wide-ranging changes over the next few months which will hopefully yield a compensation policy that more properly aligns executive’s interests with those of shareholders over the long-term.