Ethos presents its second study of executive remuneration in the 100 largest Swiss listed companies. For the second time, Ethos analysed three key aspects of executive remuneration : disclosure, structure and competencies. While the study confirms the rising trend of executive remuneration, it also finds little progress in terms of disclosure and structure of executive remuneration compared to last year. Concerning competencies, the companies now face the challenge to make the shareholders participate in the debate on executive remuneration.
The study compares executive remuneration in 2006 and 2005. It is divided into three chapters dealing respectively with remuneration disclosure, the structure of the remuneration system and the competencies with regard to remuneration. The appendices present the methodology used, the detail of individual data for companies and examples of tabular presentations that companies could use to facilitate the reporting. The first chapter analyses the transparency in light of the Corporate Governance Directive (CGD) of the SWX Swiss Exchange but also from an international best practice standpoint. The second chapter is dedicated to the analysis of the remuneration policy structure. It examines the components of remuneration, the levels of executive remuneration in 2006 compared to 2005, the link between remuneration and performance as well as Executive Directors’ contracts and severance provisions. The third chapter assesses the competencies with regard to executive remuneration, in particular the existence and composition of a remuneration committee and shareholders’ rights.
Main results:
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In terms of disclosure, little progress was observed between 2005 and 2006. The general level of remuneration disclosure still doesn’t significantly exceed the minimum requirements of the CGD.
Ethos urges Swiss listed companies to further improve executive remuneration disclosure by adopting international best practice standards. To this effect, Ethos presents in this study examples of tabular presentations allowing to standardise the disclosure in the field of remuneration.
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The analysis of the remuneration policy structure shows that the components of pay did not change since last year. The average remuneration increased for all categories of persons analysed, reaching CHF 2.3 million in 2006 for Executive Directors and members of the executive management (+ 15.8% compared to 2005) and CHF 223'000 for non executive Directors (+ 5.6%). No link between performance and variation of remuneration was found.
Ethos urges companies to strengthen the link between remuneration and performance in order to align the interests of the management with those of the shareholders.
- In Switzerland, the Board of Directors has all the competencies with regard to setting executive remuneration. The vast majority of companies analysed have established a remuneration committee in charge of designing executive remuneration. 60% of the companies have sufficiently independent remuneration committees.
Ethos urges the companies to put their remuneration report to an advisory vote of the shareholders, as recommended by economiesuisse in the Appendix 1 of the Code of Best Practice in Corporate Governance.
