News

Here you find current information on legislative changes and market trends in the area of Executive Compensation in Switzerland.

AGM 2021 - overview of compensation votes

Update on the say-on-pay votes of Swiss listed companies of the SMI Expanded at the 2021 annual general meetings, including the amounts submitted to vote, voting recommendations of Swiss proxy advisors and voting results.

Download xls (23 April 2021)

Download pdf (23 April 2021)

February 2021 — Agnès Blust Consulting is strengthening the team!

It is a great pleasure to inform you that Federica Buila is joining Agnès Blust Consulting AG as of 1 March 2021.

Before joining Agnès Blust Consulting, Federica gained theoretical business knowledge and practical compensation and benefits experience in academic and corporate settings.

Federica is currently completing her Master's degree in business and economics at the University of Zürich, with a focus on human resources and accounting. As a working student in the Compensation & Benefits function of an international Swiss-listed firm, Federica worked directly with the Deputy Vice President of Global Compensation & Benefits, supporting her in daily operating business activities as well as in special projects. With her strong analytical skills, Federica will directly support our team in client projects and product development. In addition to her mother tongue Italian, Federica speaks English fluently and has good knowledge of German and French.

You can find additional information on Federica’s profile here.

December 2020 - Ethos has published their updated voting guidelines for 2021

Ethos has recently published their updated voting guidelines for 2021.

A brief summary of the changes in the updated voting guidelines can be found below:

Say on climate (new section): vote against a company’s annual climate report if the company:

  1. does not address the main topics of climate change (governance, strategy, risk management, metrics and targets);
  2. does not publish its CO2 emissions in accordance with the Greenhouse Gas protocol or its report does not cover at least 90% of its indirect emissions (scope 3 of the protocol);
  3. has not set CO2 emission reduction target (in line with 1.5°C target and covering both direct/indirect emissions);
  4. does not publish intermediate emission reduction targets;
  5. does not disclose its progress towards its emission reduction targets;
  6. does not take adequate measures to reduce its CO2 emissions.

Independence for board members (pension): a board member is no longer considered non-independent if his/her enrollment in the company’s pension plan is compulsory. Ethos continues to hold the position that voluntary enrollment in the pension plan, with employer contributions, is a criterion for non-independence.

Shareholder resolutions: support shareholder resolutions proposing that the company prepares and adopts an annual “Say on Climate” (new), and resolutions for companies to adopt quantitative greenhouse gas reduction targets in line with the 1.5°C target (clarified).

Shareholder’s rights: vote against statutory changes in the threshold level of ownership required to put an item to vote at the AGM, if the change is not in favor of shareholders (particularly if the company currently has a lower threshold than the one required as per the revised Code of Obligations entering into force in 2022, and proposes to adjust the threshold upwards).

Ethos has already announced the following changes applicable as of 2022:

Director’s (re)election: vote against the nomination committee chair (or the board chair if a nomination committee does not exist) if the board includes less than 20% of female board members (and less than 30% as of 2026).

Ethos' updated 2021 voting policy can be found here.

December 2020 - Glass Lewis has published their updated Switzerland voting guidelines for 2021

Glass Lewis has recently published their updated Swiss voting guidelines for 2021.

A brief summary of the changes in the Switzerland guidelines can be found below:

Board diversity: vote against nominating committee chair if, from 2022, the board of an SMI or SMIM company is not composed of at least 30% of directors of each gender by 2022. Exceptions might apply for boards composed of less than four members or if compelling rationale is provided. In light of the impending changes to the Code of Obligations, companies are encouraged to voluntarily report against their gender diversity targets during the five-year transitional period.

Executive remuneration: in the AGM material, disclosure of the long-term incentive at maximum payout opportunity is preferred. However, if a company chooses to account for the long-term incentive at maximum grant value, then this should be clearly disclosed. In the compensation report, clear disclosure around the terms of any contractual post-termination non-compete agreements with EC members, or any changes to such agreements, is expected.

Glass Lewis’ updated 2021 Swiss voting policy can be found here.

December 2020 - Inrate has published their updated voting guidelines for 2021

Inrate has recently published their updated voting guidelines for 2021.

A brief summary of the changes in the guidelines as well as in the zRating criteria catalogue* can be found below:

Annual report: removal of the vote-against criteria “lack of comparability with previous years”.

Compensation report: removal of several vote-against criteria (for simplification purpose):

  1. Indication of unnoticed but obvious violation of the law or the articles of association (AoA);
  2. Late publication of compensation report (<20 days prior to AGM);
  3. Absence of absolute and relative caps in the compensation policy;
  4. Inclusion of inappropriate KPIs in the compensation policy;
  5. Compensation levels not aligned with economic situation or long-term prosperity of the company (also applicable for vote on compensation amounts).

ESG: 1 point if ESG goals are included in the AoA.

Discharge: removal of several vote-against criteria (for simplification purpose):

  1. Indication of non-compliance of the compensation with the law or the AoA;
  2. Indication of damaging behavior (for the company) by the board or the executives;
  3. Worsening of any of the following: balance sheet, equality of treatment of shareholders, number of board and/or committee meetings vs. operational challenges, information flow from the internal control management system to the board, structure of the executive management (disclosure avoidance), business performance vs communicated goals.

Capital band: vote-against recommendation if the delegation of power to increase or decrease the share capital with the band (+/-50%) is valid for more than 3 years.

Dilution: points allocated based on the capital band, authorized capital and conditional capital being smaller than a certain percentage (3 points < 30%, 2 points <20%, 1 point < 10%.

Hybrid AGM: vote-for recommendation for any changes to the AoA allowing for a hybrid AGM (physical and virtual, 1 point for hybrid AGMs) but vote-against recommendation for changes to the AoA that prohibit physical meetings.

Shareholders proposal: vote-for recommendation for any shareholders’ proposal that leads to a stronger Corporate Governance and/or sustainability performance.

Hurdle for agenda item: 1 point for a hurdle < 0.5% of share capital (previously up to 2 points, hurdle at 1%).

Delisting: 2 points (instead of 3) if the AGM decides about the delisting of the company; 0 points if the AGM has no decision power.

Inrate's updated 2021 voting policy (German) can be found here and the criteria catalogue (in German) here.

AGM 2020 - overview of compensation votes

Update on the say-on-pay votes of Swiss listed companies of the SMI Expanded at the 2020 annual general meetings, including the amounts submitted to vote, voting recommendations of Swiss proxy advisors and voting results.

Download xls (15 December 2020)

Download pdf (15 December 2020)

29 November 2020 - Indirect Counterproposal of the Responsible Business Initiative

On 29 November 2020, the Responsible Business Initiative was rejected by Swiss popular vote. The rejection of the initiative leads to the automatic implementation of an indirect counterproposal initiated by the Federal Council, unless an additional referendum is taken within 100 days of the vote (which is not expected). The counterproposal will take effect in 2021.
 
Both the initiative and the counterproposal are intended to fulfill the same purpose – to ensure the protection of human rights and the environment by large Swiss companies through increased transparency, higher reporting standards and rigorous due diligence. However, there are some technical differences between the initiative and the counterproposal. For example, the counterproposal affects changes to the Code of Obligations (CO) whereas the original initiative would have become an amendment to the constitution. In addition, the scope of the counterproposal is more specific to only include companies that exceed certain size thresholds or participate in particularly high-risk activities and Swiss parent companies are only liable for violations by legally controlled subsidiaries (the original initiative used a broader definition of controlled entities).
 
The counterproposal requires that covered companies (see below for definition) publish an annual report on non-financial matters such as the environment, human rights and anti-corruption topics with detailed information on which measures are taken to minimize potential risks in these areas. Furthermore, it requires additional due diligence measures for companies operating in sensitive areas where child labor is suspected, or conflict minerals or metals are handled. Companies are sanctioned in cases of non-compliance or negligence.
 
The key components of the counterproposal are described below:

Increase of transparency through non-financial reporting obligations

Principle (CO Art. 964bis)
  • Non-financial reporting obligations similar to those of the European Union Directive 2014/95/EU on non-financial reporting, applicable to large Swiss companies (listed companies or entities supervised by FINMA that have at least 500 employees (in two consecutive years) and either a balance sheet over CHF 20m or a revenue over CHF 40m in two consecutive years)

Purpose and content (CO Art. 964ter)

  • Obligation to report on the impact of the company’s activity on the environment (especially CO2), social and employment-related matters, human rights and anti-corruption
    • Description of the due diligence practices and processes applied in relation to non-financial matters, measures taken in this context and main risk associated to them
    • Scope of the report to contain the activities of all controlled companies whether they are domestic or foreign
    • Reporting may follow other national, European or international standards for reporting

Report (CO Art. 964quater)

  • Report subject to AGM approval, published electronically and publicly available for at least 10 years

Due diligence and reporting obligations in relation to conflict materials and child labor

Principle (CO Art. 964quinquies)
  • Obligation for all business with a registered office, headquarter or principal place of business in Switzerland that either circulate or process conflict minerals or offer goods or services in relation to which there is a reasonable suspicion of child labor

Due diligence (CO Art. 964sexies)

  • Due diligence obligations: • Implementation of a management system with a defined supply chain policy and supply chain tracing system • Introduction of a supply chain risk management plan to identify supply chain risks and to manage and mitigate them • Publication of an annual report on the compliance with these obligations that is audited by an independent third party

Reporting (CO Art. 964septies)

  • Report subject to AGM approval, published electronically and publicly available for at least 10 years

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November 2020 - Glass Lewis has published their updated Continental Europe voting guidelines for 2021

Glass Lewis has recently published their updated voting guidelines for 2021.

A brief summary of the changes in the Continental Europe guidelines can be found below:

Board and workforce diversity: vote against nominating committee chair or new board member if board is not composed of at least 30% of directors of each gender by 2022 (applicable to mid-cap or large-cap European indices, or in countries with well-established gender quotas in law or best practice; for all other EU companies, at least both genders should be represented). May recommend shareholder action if board fails to address concerns regarding the diversity of ethnicity of the board

Human capital management: vote against chair of the applicable committee or board chair when the board has failed to respond to legitimate concerns with a company’s human capital management practices (includes workplace issues such as labor practices, health and safety, employee engagement, diversity, inclusion)

Environment and social risk: as of January 2022, vote against governance chair of a board who fails to provide disclosure on the board’s role in overseeing environmental and/or social issues (applicable to companies listed on EU blue chip indices). Generally support shareholder proposals that seek to improve governance structures or disclosure in line with long-term interests of shareholders

Virtual shareholder meetings: support companies facilitating the virtual participation of shareholders in general meetings, if clear procedures are set and disclosed to ensure that shareholders can effectively participate in virtual meetings and communicate with company management and directors

Director age/term limit: no longer recommend against proposals that seek to introduce or amend director age or term limits in line with prevailing market practice. May vote against nominating committee chair if director (re)election is not compliant with applicable age/term limit

Remuneration committee discretion and stakeholder alignment: may vote against remuneration report if (1) remuneration committees do not retain a level of discretion to ensure that pay outcomes align with company performance, as well as shareholder and employee experiences, and there is a substantial misalignment; and (2) if executive pay increases are substantially higher than other employee salary increases

Anti-takeover devices: may vote for share issues in the context of a takeover offer (i.e. poison pill) where the proposal is limited in timing and scope to accomplish a particular objective (closing of a merger, or other justified rationale)

Glass Lewis’ updated 2021 voting policy can be found here.

November 2020 - ISS has published their updated voting guidelines for 2021

ISS has recently published the updates to their voting guidelines for the AGM season 2021.

A brief summary of the changes in the ISS Continental Europe guidelines can be found below:

Board of Directors – amended sections:

  • Director Elections: vote against individual directors in case of material failures of governance, stewardship, or risk oversight, including demonstrably poor risk oversight of environmental and social issues, including climate change;
  • Director Terms: the provision to vote against the (re)election of individual directors if their term is not disclosed or exceeds four years, and adequate explanation for noncompliance has not been provided, is extended to all European countries (previously only applicable to Belgium, France, Greece, Netherlands, Spain, and Switzerland);
  • Election of a Former CEO as Chairman of the Board: for Germany, Austria and the Netherlands, the provisions to vote against the (re)election of a former CEO as chairman to the supervisory board or board of directors is extended to all companies (previously only applicable to "widely-held" companies);
  • Overboarded Directors: the provision to vote against overboarded directors is extended to all companies (previously only applicable to "widely-held" companies); the provision itself (number of board appointments) is unchanged;
  • Composition of Committees: the provisions to vote against (1) the (re)election of any non-independent members of the remuneration committee and (2) to vote against (re)election of executives who serve on the company's audit or remuneration committee are extended to all European countries (previously only applicable to selected countries); the provision for non-independent members is clarified and applicable if fewer than 50 percent of the remuneration committee members, who are elected by shareholders in such capacity or another – excluding, where relevant, employee shareholder representatives – would be independent; or fewer than one-third of all remuneration committee members would be independent;
  • Board Gender Diversity: the provision to vote against the chair of the nomination committee (or other directors on a case-by-case basis) is clarified and apply if the underrepresented gender accounts for less than 30 percent (or any higher domestic threshold) of board directors of a widely held company or both genders are not represented on the board of a non widely-held company. Mitigating factors may apply, such as compliance with the relevant standard at the preceding annual meeting and a firm commitment, publicly available, to comply with the relevant standard within a year. This guideline change will be applicable as of February 2022 (one-year transition period).

Executive compensation – amended sections:

  • Disclosure: the remuneration report disclosure is expected to include amongst others: amounts paid to executives, alignment between company performance and payout to executives, disclosure of variable incentive targets and according levels of achievement and performance awards made, after the relevant performance period (ex-post), and disclosure and explanation of use of any discretionary authority or derogation clause by the board or remuneration committee to adjust pay outcomes.

Appointment of auditors and auditor fees – amended section:

  • Fee Cap: the cap on non-audit services fees, set at 100% of audit-related fees, is extended to all companies (previously only applicable to "widely-held" companies).

Find further information for all ISS' EMEA / Continental Europe Policy Updates here.

August 2020 - Webinar for Corona Related Remuneration Questions in the Year 2020

The Covid-19 pandemic has impacted companies in a variety of different ways. Many have suffered significant, negative economic consequences while others have been more fortunate and benefitted from the crisis. Regardless, the economic impacts have rendered the incentive remuneration performance targets irrelevant for many of these companies.

Obermatt, together with Agnès Blust Consulting, will host a 90-minute webinar to discuss this topic on 26 August 2020. During the webinar, we will analyze the response of companies to the Covid-19 related challenges in their compensation practice and examine a solution that has proven reliable, even in turbulent times. In the second part of the webinar, participants are invited to exchange their experiences and views on the topic.

This webinar is free of charge and is intended for HR managers and compensation experts who are interested in the topic and would like to participate and exchange experiences.

The Webinar will be held in English and German on 26 August 2020.

 

Webinar in English

Webinar in German

Date

26 August 2020

26 August 2020

Time

1:30pm – 3:00pm

9:00am – 10.30am

More information

More information and registration: English webinar.

More information and registration: German webinar.

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July 2020 - revised stock corporation law (amendment to the Swiss Code of Obligations)

The amendment of the Swiss stock corporation law has been under discussion for several years and is now finalized. The revisions aim to strengthen the rights of shareholders as well as guide organizations to establish strong Corporate Governance and Corporate Social Responsibility frameworks by introducing additional requirements and increasing the quality of disclosure.

Compensation elements

  • Compensation voting scheme: following ongoing debate on whether to allow or to forbid prospective votes on variable compensation for the executive management committee, the final rule now permits both alternatives, i.e. a retrospective or prospective vote on variable compensation. However, if a company chooses a prospective vote on variable compensation, a consultative vote on the compensation report needs to be conducted mandatorily (otherwise, the consultative vote on the compensation report remains optional).
  • Replacement awards: compensation forfeited by the previous employer due to joining a new company may be compensated by the new employer.
  • Non-competition clause: non-competition clauses are allowed but limited to the average individual total compensation of the last three years.
  • Gender diversity: introduction of a gender quota for the board of directors and the executive management committee. The quota will require representation of at least 30% of each gender within the board of directors and 20% within the executive management committee. If the quotas are not reached, reasons for non-compliance as well as measures on how to promote the underrepresented gender need to be disclosed in the compensation report. Explanations in the compensation report will become mandatory after a period of five years for the board of directors and after 10 years for the executive management committee.

Other elements

  • Virtual Annual General Meeting (AGM): virtual AGMs will be permitted by law but are subject to the participants’ correct identification and must allow voting participation and discussions during the AGM.
  • Independent proxy: general information on voting trends can be provided three days in advance of the AGM at the earliest. The independent proxy is required to report to the AGM what information was shared with the board of directors. This forces organizations to establish strong Corporate Governance structures as the outcome of AGMs will presumably be less predictable.
  • Placing an item: in order to place an item at the AGM, shareholders are required to represent at least 0.5% of the capital/voting rights. Under the Ordinance against Excessive Compensation (OaEC) this threshold was much higher with a minimum of 10% capital/voting rights requirement.
  • Call for a shareholder meeting: under the OaEC, a call for a shareholder meeting could only be made if the shareholder represented 10% of the capital/voting rights. Within the new revisions of the stock corporation law, this is reduced to 5% of the capital/voting rights.
  • Legal actions: taking legal actions at the expense of the organization are facilitated as well as undertaking special investigations against the organization.
  • Introduction of a capital band: the board of directors has the right (if this is included in the articles of association) to increase or decrease the share capital by 50% (capital band) within five years, subject to certain conditions (e.g. anti-dilution). This amendment intends to increase flexibility.
  • Interim-dividends: the payments of mid-year dividends are permitted, subject to shareholder approval.

Responsible Business Initiative

The responsible business initiative holds organizations responsible which refrain from environmental protection regulations and human rights within the organizations. Moreover, they will also be held responsible for actions of economically dependent organizations on a global basis. The initiative goes much further than any comparable regulations in other countries. The counterproposal to this initiative is based on a comprehensive disclosure requirement and might impose less risk and potential harm to organizations. Furthermore, it is more in line with regulations in other countries.

A popular vote on both proposals – the responsible business initiative as well as the counterproposal - will most likely take place before the end of this year.

Covid-19 update - impact of Covid-19 pandemic on stakeholders

In the context of the Covid-19 pandemic, several Swiss listed companies are taking decisions that impact various stakeholders, such as the introduction of short-time work for employees, postponement of AGM date, reduction or cancellation of 2019 dividend payments to shareholders and/or compensation reductions for executives and/or members of the board of directors. We are monitoring those actions based on publicly available information and provide a summary, updated regularly, in the file below.

Overview - 18 November 2020

April 2020 - ISS and Glass Lewis publish additional guidance on their voting policies in light of the Covid-19 pandemic

“Good governance is relevant in all types of weather, boom or bust, but there is no better way to observe the effectiveness of governance than in a crisis.” (Glass Lewis)

ISS and Glass Lewis provide additional guidance on their voting policy under the current situation, heavily impacted by the Covid-19 pandemic. Both proxy advisors do not plan any specific changes to their guidelines, which are already built for unusual circumstances, and will exercise the appropriate discretion and judgement to assess companies’ proposals. However, both insist on the importance of transparent disclosure in these times of crisis.

You will find below a summary of the guidance and recommendations on Annual General Meetings (AGM) and compensation matters.

ISS

Compensation issues

  • Change in metrics/shift in goals or targets: adjustments to performance metrics, goals or targets used in short-term incentive plans will be addressed at 2021 AGMs, but ISS expects companies to provide immediate disclosure on any changes planned together with a detailed rationale. Adjustments to long-term incentive plans are generally not supported but will be looked at on a case-by-case basis.

  • Option repricing: generally, recommend opposing any repricing that occurs within one year of a drop in the company’s stock price. ISS will take into account other factors when assessing the repricing, e.g. if the design is shareholder value neutral, if surrendered options are not added back to the plan reserve, if replacement awards do not vest immediately or if executives committee members and members of the board are excluded from the plan.

AGM issues

  • Meeting postponements: companies are expected to inform shareholders about material events and developments by using their standard disclosure documents, press releases and websites.

Board/Directors

  • Director attendance: in-person meetings cannot be required, but companies are expected to provide alternate ways of participation/attendance and to provide adequate information to shareholders on directors’ attendance.
  • Changes to the Board of Directors or Senior Management: boards might need to fill vacancies urgently or fill executive roles on an ad-interim basis; ISS considers that boards should have broad discretion on these issues and will adjust the application of their policies appropriately on a case-by-case basis.

Find ore information here: ISS guidance

 

Glass Lewis

Compensation issues

  • Compensation issues: will recommend against any companies whose proposals are unjustified (increasing executive compensation levels, substantial adjustments to equity compensation plans, poor pay-for-performance). Glass Lewis advises against trying to make executives whole, while shareholders and employees will often see their payments cuts.

Board/Directors

  • Board composition and effectiveness: addresses the lack of diversity on boards and the likely lower board meeting attendance rates, which, combined with meetings being held remotely, could reduce the effectiveness of board meetings and decision-making.

Find more information here: Glass Lewis guidance

December 2019 - Glass Lewis has published the Swiss voting guidelines for 2020

Glass Lewis have recently updated their voting guidelines for Switzerland.

A brief summary is provided below:

  • Board chair classification: clarification of the independence criteria for the board chair. Further, if a board chair receives compensation at a similar level as executives, that board chair will be classified as affiliated. If the board chair seems to hold an executive or full-time role, or receives performance-based compensation, that board chair will be classified as insider. Any insider board chair should not be member of the audit or of the compensation committee
  • Appointment of a lead director: in cases where the board chair is considered an insider, an independent lead director should be appointed.
  • Board diversity and skills: companies should provide a robust assessment of the board’s profile in terms of diversity and skills. Will vote against the chair of the nomination committee if the board has not addressed major and continued issues of board composition (composition and mix of skills and experience)
  • Compensation disclosure: compensation of executive committee members should be disclosed individually.

Further details can be found here.

December AGM 2019

Update on the say-on-pay votes of Swiss listed companies of the SMI Expanded at the 2019 annual general meetings, including the amounts submitted to vote, voting recommendations of Swiss proxy advisors and voting results.

Download

Article - Why some investor's compensation guidelines seem to work against the long-term interests of shareholders

In the context of providing advisory services to boards of directors of Swiss listed companies, we have numerous interactions with proxy advisors, institutional investors and shareholders’ representatives. Although most voting guidelines of proxy advisors and institutional investors are logical and sound, we have identified two critical areas where such guidelines are potentially not in the best interests of shareholders:

  • Over-emphasis on profit-based incentive plans, although such plans may have real pitfalls;
  • Collective aversion to incentive plans that allow for payout for below-median performance, although such design may actually be sound, especially in the long-term.

The pitfall of profit-based incentives

Most proxy advisors and institutional investors support incentive plans that incentivize mainly (or only) the attainment of profit-based metrics such as net income, profit, profit margin, earnings before interest and tax (EBIT) before depreciation and amortization (EBITDA), earnings per share (EPS) or free cash flow. From our perspective, this approach has substantial pitfalls: profit-based plans may incentivize executives to downsize companies and inhibit innovation and creativity because they focus on reducing cost and investment, reorganizing and restructuring in order to optimize short-term profit. The temptation to quickly and easily increase profitability through cost reduction versus the more difficult task of growing revenue and market share can have far reaching, long-term consequences. This effect has been analyzed and criticized by some economists such as Andrew Smithers and Jean Tirole: modern management remuneration dramatically increases the reward for meeting short-term profit and share-price related targets. Under the bonus culture, management are encouraged to disregard the longer-term risks to their companies that come from underinvestment and aggressive pricing.(source: Andrew Smithers, Productivity and the Bonus Culture, 2019)

Given that the profit achieved in a single business year is built on a complex mix of outcomes from past decisions and from decisions that have immediate and future results, exclusive focus on annual profit as a performance measure can distort the decision-making process on cost and investments.

Therefore, we think that shareholders should support balanced compensation plans that incentivize executives for investing in the long-term success of their company rather than for optimizing short-term profit. Such plans should also incentivize growth. “You can’t shrink your way to greatness” (source: Tom Peters, In Search of Excellence, 1999)

 

Collective aversion to incentive payouts for below-median performance

Most companies apply a total compensation approach where total compensation (annual base salary (ABS) + target short-term incentive (STI) + target long-term incentive (LTI)) is benchmarked against the median of the relevant market.

  • In case of underperformance, the STI and LTI payouts are below the target level, thus total compensation is below market median.
  • In case of outperformance, total compensation is above market median through incentive payouts above target.

“Target” performance corresponds to the expected level of performance:

  • For absolute performance conditions (e.g. own set targets that are independent from the market), the target level usually corresponds to the budget of the annual plan of the company. Therefore, the expectation is that target performance will be achieved.
  • For relative performance conditions, the performance is expressed in comparison to peer companies that are subject to similar market cycles. The intention is to neutralize the effects of market cycles and to measure the “true” performance of the company. In the context of the total compensation approach where total target compensation is set at market median, it is common for companies to set the target performance level at the median of the peer group. This means, median performance corresponds to median compensation.

Several investors reject incentive plans that allow for payout for below-median performance. However, the statistical probability of reaching the median performance in a peer universe amounts to 50%. This means that the plan design required by investors will generate a zero-payout in half the cases. Depending on the design of the payout curve, the average payout expectation may be well below 100% as illustrated below.

From our perspective, the design where the threshold for payout is median performance (examples 1 and 2), is problematic for several reasons.

First, as the average payout is below 100%, the regular message to executives is that they missed their targets. This is demotivational (“we did not make the targets”, “we are not able to perform”), may result in a loss of trust in the compensation model (“the plan does not pay out”, “targets are not realistic”) and potentially renegotiation of other compensation elements. The possible responses from the board of directors may be to get rid of relative performance conditions altogether or to increase the payout potential through other compensation elements. None of this is in the interest of shareholders.

Secondly, the average expected payout of an incentive plan impacts the fair grant value of the award. For market-based conditions such as relative total shareholder return, the fair grant value of the award is calculated through an algorithm (Monte Carlo) that simulates a multitude of potential performance outcomes based on the payout curve. The lower the average expected payout, the lower the fair grant value of the award. Considering that companies typically pre-determine a monetary value for the award for their executives, the number of units granted increases when the fair grant value of such unit decreases.

In examples 1 and 2 of the illustration on the left, the fair grant value of the unit is lower than in examples 3 and 4. Thus the company will grant a higher number of units in order to provide the same monetary value to the executives.

By rejecting compensation plans with a possibility of payout for below-median performance, investors encourage companies to design incentives with a lower average expected payout and to consequently grant a higher number of units to their executives. Yet, the overall cost is the same under all plan designs!

In both examples, the value of the grant amounts to CHF 1,000,000 and the probable vesting is 10,000 shares.

Thus, both examples generate the same cost in terms of value granted and vesting outcome. However, the payout is less volatile in example 3.

From our perspective, a balanced incentive design differentiates payouts based on performance and should not create unintended effects due to high payout volatility. In that sense, the approach taken by most Swiss companies - which is to allow for some incentive payout for below-median performance - makes sense and has its own merits, which will hopefully find shareholders’ support in the future.

December 2019 - Ethos has published the voting guidelines for 2020

Ethos have recently updated all of their voting guidelines. A brief summary is provided below:

Negative voting recommendation may apply to the following cases:

  • Board chairs who hold an executive function in the company and a time limit for the dual role has not been defined (previously: in case of combination of board chair and CEO function)
  • Compensation amount put to prospective vote if the proposed amount is substantially higher than the effectively paid compensation in the past without clear explanations
  • Compensation amount for the board of directors if the compensation of the board chair and/or the board members exceeds the average compensation of the executives
  • Share capital increases exceeding 33% of outstanding share capital (previously 50%)
  • Conditional share capital increases without pre-emptive rights that may contain a so-called “poison pill”
  • Share buy-backs if the share-based compensation plans do not fulfill best-practice guidelines
  • M&A transactions where the information provided is not sufficient, especially the independent fairness opinion

Find further information on the Ethos voting guidelines for 2020 here (in German or French only).

November 2019 - ISS has published the voting guidelines for 2020

ISS have recently updated all of their voting guidelines.

A brief summary of the changes of the voting guidelines for ISS Continental Europe can be found below:

  • Added section supporting non-financial information reports unless material concerns have been raised.
  • Amended section on attendance to clarify that board and committee meeting attendance is considered.
  • Amended section on director terms to say from 2021 the policy will be applied to all European companies.
  • Amended section on board independence to highlight the importance of an independent board chair.
  • Added policy on board diversity opposing the chair of the nomination committee when there are no female directors.
  • Amended section on severance pay to change wording to termination payments and added section on discretion.
  • Amended section on the remuneration committee to say they may also vote against the board chair.
  • Added section supporting employee stock purchase plans.

Find further information for all ISS' EMEA / Continental Europe Policy Updates here.

November 2019 - Glass Lewis has published the European voting guidelines for 2020

Glass Lewis have recently updated some of their voting guidelines for the United States, the UK, Canada, Continental Europe, Israel and Shareholder Initiatives (approach to proxy advice).

A brief summary of the changes of the voting guidelines for Continental Europe can be found below:

  • Added paragraph on the Shareholder Rights Directive II's requirements on related party transactions.
  • Added section on board responsiveness.
  • They will now consider recommending against the chair of the nomination committee if board composition issues have not been addressed.
  • Revised and expanded section on remuneration report.
  • Significantly expanded section on remuneration policy.
  • Added sentence on disclosure of targets for short term incentive plans.
  • Amended section to recommend holding the senior independent director responsible at at FTSE 350 where a detailed record of the proxy voting results from the last annual meeting has not been disclosed.

Find further information and changes for all the countries listed above here.

SIX Exchange Regulation Communiqué No. 04/2019

SIX issued its observations of the 2018 annual reports review regarding corporate governance aspects:

A. Reference and accessibility (place of publication: Art. 6 DCG)

SIX states that information relating to corporate governance must be published in a separate section of the annual report (CG report).

If references to other parts of the annual report or sources of information is made, exact location must be provided (e.g., page number, margin number, precise weblink or search path). When referring to websites, both dynamic and static, date-specific data and entire annual reports accessibility for a minimum of five years following publication needs to be ensured.

B. Changes to the BoD and the EC as at the reporting date (3.1 and 4.1 Annex DCG)

For each member of the BoD and the EC, information concerning i.a. name, nationality, education and professional background needs to be provided. The conditions on balance sheet date constitute the deciding factor.

SIX specifically notes, that important factors which had an impact during the year under review but are no longer relevant as of the reporting date have to be mentioned in the CG report (e.g., former BoD/EC members who belonged to the respective body during the reporting year but were no longer serving as member on the balance sheet date).

Additionally, it is highlighted that significant changes that occurred between the reporting date and the annual report’s copy deadline must be added in an appropriate form, i.e., reference to personnel changes on the BoD and the EC, including details on the persons in the CG report (or referring to previous reports or weblink) with relevant dates.

C. Content and method of determining the compensation and the shareholding programmes (Point 5.1 Annex DCG)

The responsibilities, criteria and procedure for determining compensation and shareholding programmes of current/former members of the BoD and the EC as well as the principles and elements of the programmes are to be set out in a comprehensible manner.

If benchmarks are used in determining compensation, a brief explanation of the content or composition of such benchmarks is required (e.g. changes in the company’s share price in relation to an index or in relation to competing companies).

If compensation of other companies is used for comparative purposes (salary comparisons), these peers should be named or at least described in more detail (e.g. by providing more precise details on the sector, size, economic significance and operating territories of other companies).

SIX highlights that terms such as “international companies”, “companies of the same size” or “similar industry companies” are considered inadequate and must therefore be described in concrete terms. Also phrases such as “in line with market practice” or “basic salary in line with the market” are considered as too general.

Find further information here.

July AGM 2019

Update on the say-on-pay votes of Swiss listed companies of the SMI Expanded at the 2019 annual general meetings, including the amounts submitted to vote, voting recommendations of Swiss proxy advisors and voting results.

Download

May 2019 — Agnès Blust Consulting is strengthening the team!

It is a great pleasure to inform you that Aurélie Perronnet and Richard Thoroe are joining Agnès Blust Consulting AG as of 1 June 2019.

Aurélie Perronnet combines over 10 years of experience in compensation. She started her career as a senior consultant in compensation and people services at a leading global consulting company where she had the opportunity to advise companies on broader compensation matters across all sectors. Aurélie pursued her career with a Swiss proxy advisor as an analyst in the area of Environmental, Social and Governance (ESG) before joining a global pharmaceutical company as manager of Group executive compensation. During those assignments, Aurélie had the opportunity to gather experience as external consultant and as in-house expert. She specialized in the area executive compensation with strong focus on disclosure and reporting, investor consultation and communication.

Richard Thoroe has over 15 years of consulting experience in compensation. He started his career as a pension actuary for a leading global consulting firm in the United States before joining a boutique-consulting firm, where he advised compensation committees on compensation strategy, compensation plan design, executive compensation governance and broader compensation matters. Richard relocated to Switzerland in 2015 to lead the Swiss executive compensation practice of a leading global consulting firm. He has significant experience in advising private and listed firms across various industries and had the opportunity to work with all levels of internal and external stakeholders.

You can find additional information on Aurélie’s and Richard’s profile here.

January 2019 - Changes of proxy voting guidelines

The focus of this year’s proxy advisors voting guidelines includes topics such as board diversity (skills and gender), board independence and availability (number of external mandates/overboarding, meeting attendance, business relationship with the company) and auditor independence.

Find below a summary of the changes of the proxy advisors voting guidelines for 2019 compared to previous year.

ISS considers recommending against vote if:

  • Significant auditing controversies appear (election of auditor)
  • A board member’s ability raises doubt to serve in the best interests of shareholders (election of board members)
  • A board member’s meeting attendance is below 75% without explanation (election of board members)
  • Fewer than one-third of audit committee members are independent (election of non-independent board members)
  • More than 10% of issued share capital (without pre-emptive rights) or more than 50% of issued share capital (with pre-emptive right) (approval of share issuance request)

Glass Lewis (European policy) considers recommending against vote if:

  • A board member appears to have a conflict of interest (election of board members)
  • The board of directors is not balanced in terms of diversity and skills (election of board members)
  • There are apparent environmental and social issues (election of board members/audit committee)
  • Auditor tenure exceeds 10 years (election of auditor)
  • Pay for performance link and company performance seem not aligned (compensation report and/or binding votes on compensation)

Ethos considers recommending against vote if:

  • There is no sustainability report (approval of annual report)
  • The value of discounted share-based compensation amount or the maximum potential payout level is not considered (binding vote on compensation - executives)
  • Board members receive regular additional fees for consulting services (binding vote on compensation – board of directors)
  • Overboarding of certain board members (election of board members)

zRating considers recommending against vote if:

  • The board is not diverse (skills, diversity, tenure, age,) and board members are not considered independent (election of board members)
  • The compensation is not best practice, the board member is executive or receives variable compensation (election of compensation committee member)
  • Different categories of shares apply (approval of increase of share capital)

Find further information here.

NEW! 14 December 2018 — Update to the Federal Act on Gender Equality

On 14 December 2018 the Federal Council approved the update to the Federal Act on Gender Equality. We have informed previously about the then ongoing debate and have provided a rough history of gender wage equality in Switzerland.

At last the two chambers of the Federal Council came to agreement that companies with more than 100 employees will have to conduct an analysis every 4 years in order to determine wage equality. It is especially important to note that the change from 100 full-time equivalents only as originally proposed to an inclusion of most employees, irrespective of full- or part-time employees, will lead to a more conclusive wage analysis. This is because 75% of part-time employees are female who would not have been considered under the original proposal.

More details:

  • The wage analysis applies to 1% of Swiss companies (100 employees or more). These companies employ 46% of all employees;
  • No further analysis is going to be necessary if a certified analysis was conducted and the outcome stated wage equality;
  • The wage analysis is applicable for a time duration of 12 years (sunset clause);
  • No sanctions will be introduced in case of breach of the Act.

Find further information here (in German or French).

NEW! 12 December 2018 — Update on the reform of the Swiss corporate law

Yesterday, the Council of States discussed the changes to the revision of the corporate law. Primarily the need for amendment emanated from the Ordinance against Excessive Compensation with respect to Listed Stock Corporations and the incorporation of the ordinance into law.

In November 2018, the Legal Affairs Committees (LAC) amended the draft law which passed the debate in the National Council earlier this year. The LAC included a series of new regulations in the draft and included remuneration-related topics which were considered earlier as concluded. Examples of new regulations in the draft are:

  • Individual disclosure of remuneration for executive committee members in listed companies
  • Prohibition of prospective shareholders vote on executive remuneration
  • Prohibition of compensation for non-competition
  • Prohibition of compensation for change in control
  • Disclosure of any proxy advisors’ consulting mandate and naming (potential conflict of interest)
  • Disclosure of payments to political stakeholders / assemblies
  • Disclosure in case of mutual influence on compensation for members of the board of directors or executive committee in other companies

Yesterday, the Council of States rejected the proposal and remitted it back to the LAC. The mandate is to incorporate the Ordinance against Excessive Compensation without major changes to not cause mandatory changes of articles of associations of listed companies.

You can find more information (in German) here.

November 2018 — Glass Lewis has published the voting guidelines for 2019

Glass Lewis has published the voting guidelines for 2019. Aspects related to compensation have not changed. Amendments compared to the guidelines in 2018 include:

  • Conflict of interests of Board of directors: when assessing a potential conflict of interest faced by an individual director, GL will consider the specific nature of the professional services relationship between the company and the director, the independence profile of the board and its key committees, and the conflict mitigation procedures in place when making voting recommendations on this basis.
  • Board skills: GL’s analysis of election proposals at companies listed on a blue-chip index in Europe includes an explicit assessment of board skills disclosure. GL expects a robust, meaningful assessment of the board's profile in terms of diversity and skills.
  • Environmental and social risk oversight: For companies listed in a blue-chip index, GL will review a company’s overall governance practices to identify which directors or board-level committees have the oversight of environmental/social issues. In instances where a company has not properly managed or mitigated environmental or social risks to the detriment of shareholder value, or when such mismanagement has threatened shareholder value, GL may recommend a vote against members of the board who are responsible for the oversight of environmental and social risks. In the absence of explicit board oversight of environmental and social issues, GL may recommend against members of the audit committee.
  • Appointment of auditor: GL may recommend voting against an auditor when tenure exceeds 10 years (or 14 years in case of a joint audit assignment). GL will also take auditor tenure into consideration when assessing any pattern of inaccurate audits and any ongoing litigation or significant controversies which call into question an auditor's effectiveness.
  • Compensation: GL will assess the realized pay received by a company’s top executives over at least three years when evaluating the link between pay and company performance.

You can find the updated policy and information here; we will keep you abreast of any further proxy advisor updates

November 2018 — Organizational changes within our team

It is a great pleasure to inform you that Sandra Tommer is joining Agnès Blust Consulting AG as Principal as of 1 December 2018. Sandra replaces Nicole Brunschweiler, who has decided to take on a corporate role as Head of Compensation & Benefits for a Swiss listed multinational company.

Sandra combines over 15 years of experience in the area of compensation and governance in the financial services. In her last position, she served as Head Reward Governance & Regulatory Compliance, Executive Director for a large bank, following several years as Head of Reward Governance and Executive Compensation. Sandra specialized in compensation governance matters, including policies, disclosure, annual general meeting support and regulatory compliance. Further, she supported the compensation committee with regards to executive compensation and compensation governance matters. Please join me in welcoming Sandra in our team!

Nicole has decided to join a multinational company as Head of Compensation & Benefits and therefore will leave us at the end of this year. It has been a great pleasure to work with Nicole over the last two years and I am very thankful for her time with us, her engagement, the strong support she provided to our clients and her fantastic contribution to our team. While I see her leaving with much regret, I wish Nicole all the best for her new challenge and ask you to join me doing so!

Sandra, Anna and I look forward to our continuous collaboration and to supporting you and your business on any compensation matter in the future.

You will find further details about the team here.

August 2018 — Report on executive compensation design in Switzerland can be ordered now

The fourth edition of our the report on executive compensation design in Switzerland has been published. 

The report is organized similarly to previous years, with an overview of compensation model of the Board of Directors and Executive Committees in the SMI Expanded. In addition, the company profiles will provide you with specific information on each of the organizations of the SMI Expanded on:

  • Structure of board compensation
  • Short-term incentive plan design including target level, maximum payout opportunity, key performance indicators
  • Deferral plans including vehicle (cash/equity), deferral period, vesting conditions, key performance indicators
  • Long-term incentive plan design including target level, maximum payout opportunity, key performance indicators, vehicle (cash/equity), vesting period, provisions in case of termination

Find further information here.

July 2018 - 2018 UK Corporate Governance Code

The British Financial Reporting Council has released the 2018 UK Corporate Governance Code, a shorter, sharper (20 pages) Code which aims at forging strong relationships of key stakeholders to ensure long-term sustainable growth in the UK economy. Clear, meaningful reporting should enable investors and proxy advisors to analyse explanations carefully and avoid a tick-box approach.

The new Code applies to accounting periods beginning on or after 1 January 2019, and the key considerations include:

  • When 20% or more votes are cast against a board recommendation, the company needs to be pro-active to better understand the results. The input received and actions taken should be published within six months and also included in the next annual report.
  • The chairman of the board should generally not remain in post beyond nine years from the first appointment to the board.
  • Remuneration committee chairmen should have served on the committee for 12 months prior to the chair position (and should not be the chairman of the board).
  • Equity based awards should have a total vesting and holding period of at least five years.
  • Remuneration plans need to avoid pay for non-performance, should enable discretion to override formulaic outcomes and have malus/clawback mechanisms.

You can find the updated 2018 UK Corporate Governance Code here.

July AGM 2018

Update on the say-on-pay votes of Swiss listed companies of the SMI Expanded at the 2018 annual general meetings, including the amounts submitted to vote, voting recommendations of Swiss proxy advisors and voting results.

Download

7 December 2017 - Glass Lewis 2018 policy guidelines for Switzerland and for Continental Europe

Glass Lewis published the 2018 Policy Guidelines for Switzerland and for Continental Europe:

Switzerland: From a compensation perspective, the key update on the Swiss Guidelines covers non-compete clauses: Glass Lewis aligned the Swiss with the Continental Europe Policy Guidelines and local best practice on termination payments, clarifying that they generally consider a cap of one year base salary to be in line with best practice standards.

Continental Europe: In the Continental Europe Policy Guidelines, key compensation related changes mainly cover pay ratios and incentive plan targets:

  • Pay ratios: As it relates to the disclosure of pay ratios, Glass Lewis clarifies that they encourage companies to do this, including a description of the calculation methodology. They state that the disclosure of pay ratios between the CEO and median or average employee may be useful in putting executive remuneration levels into the relevant context, both within the business and within industries.
  • Incentive plan targets: They may recommend voting against say on pay proposals where performance targets are set below targets provided in guidance to shareholders, subject to a compelling rationale for lowering the target. Performance metrics should have a clear and direct link to a company's strategy, including explicit references, where appropriate, to KPIs described in relevant business cycles such as transformation plans.

Additionally, Glass Lewis specified that for an executive who owns or directly controls more than 10% of a company's shares, they would expect them NOT to participate in equity incentive schemes, considering the already existing alignment with shareholder interests.

The updated policies can be found on the Glass Lewis homepage for both Switzerland and Continental Europe as well as for other markets.

4 December 2017 - Ethos 2018 proxy voting guidelines

Ethos published the 2018 proxy voting guidelines, with key changes focusing on expectations for compensation report voting recommendations:

  • In the context of approving compensation reports, Ethos expects transparency regarding both the performance underlying incentive payments as well as the actual payments received
  • For both short- and long-term incentives, disclosure should thus include:

    1. Initial awards made;
    2. Achievement against performance targets set, described in detail, underlying payment/settlement; and
    3. Actual amounts paid
  • These three aspects will for the short-term incentive need to be included in the compensation report of the performance year, and for the long-term incentive in the compensation report of the vesting year (in addition to LTI award values in the grant year)
  • Additionally, compensation report voting recommendations will also depend on whether usage of the compensation amounts approved by shareholders is in line with the relevant proposal submitted at the respective previous general meeting. Consequently, disclosure of actual compensation awarded will need to be sufficiently transparent and clear, including at least a reconciliation to the approved amounts, to enable an external assessment.

To cover these points, Ethos both split one previous section1 into two2 in the 2018 policy, as well as adding a new Appendix 5 covering Ethos’ expectations as it relates to compensation reports, including the above.

You can find the updated policy and information here; we will keep you abreast of any further proxy advisor updates.

November 2017 - ISS policy update

Last week, Institutional Shareholder Services Inc. (ISS) released updates to its 2018 benchmark proxy voting policies each for the Americas, EMEA, and Asia-Pacific regions with minor changes. The updated policies will generally be applied for shareholder meetings on or after Feb. 1, 2018.

According to ISS, the updates are based on extensive research, survey and other preparatory work. Key changes to the EMEA policy include:

  • LTIP vesting: ISS specify that they expect no more than 25% vesting at threshold performance, in particular if LTIP awards are “large multiples of salary”, also depending on how challenging threshold targets are.
  • Director overboarding: ISS is updating its policy to recommend against a candidate if s/he holds an excessive number of board appointments. Excessive in this context meaning i) persons who hold more than five mandates (with non-executive chairmanship counting as two, and executive directorships – or similar roles – as three mandates) and/or ii) persons who hold an executive directorship (or similar) role at one, and a non-executive chairman role at a different company.
  • Board independence – non-widely held companies: ISS considers the minimum sufficient board independence to be one-third, and would generally vote against a re-/ election of non-independent directors at non-widely held companies (excluding the CEO) if this threshold is not met. This policy is subject to a one-year transition period and thus comes into effect in February 2019.
  • Virtual/hybrid meeting proposals: While ISS typically is for hybrid (that is, both physical and electronic/on-line) shareholder meetings, it will generally recommend voting against proposals for virtual-only (with no physical, in-person) shareholder meetings.
  • Share issuance requests: ISS generally recommends in favour of such requests without pre-emptive rights of no more than 20 percent of the issued share capital and of no more than 100 percent with pre-emptive rights. This will after a one year transition period be tightened to potential dilution limits in Continental Europe to 10 percent without and 50 percent with pre-emptive rights respectively. According to ISS this is reflective of ongoing trends in Europe in general.

While not strictly relevant for Switzerland, it is interesting to know that for UK FTSE 350 companies ISS now specified that both the audit and the remuneration committee should consist of at least three non-executive, independent members. And that the chairman of the board may (if deemed independent on appointment as chairman) be a member, but not the chair of the remuneration committee.

You can find the updated policy and information here, we will keep you abreast of any further proxy advisor updates.

28 September 2017 — Anna Müller is joining the team

It is a great pleasure to inform you that Anna Müller is joining Agnès Blust Consulting AG as Compensation Analyst as of 1 October 2017.

Prior to joining Agnès Blust Consulting, Anna gained practical experience in a consulting firm during her studies, where she coordinated sales and marketing activities. Anna is currently finishing her degree Master of science in business and economics with a focus on "incentives in various business contexts" at the University in Bern. With her strong analytical skills, Anna will directly support our team in client projects and in the development of our products. In addition to her mother tongue German, Anna speaks English fluently and has good knowledge of French.

You will find further details about the team here.

April 2017 — Publication of the revised SIX Guideline (Commentary) on the Corporpate Governance Directive

On 10 April 2017, the Swiss SIX Exchange published Communiqué No. 3/2017 announcing the publication of a completely revised Commentary on the Directive on Information Relating to Corporate Governance (DCG). The Commentary (now: Guideline) contains further information on the individual requirements of the DCG and its Annex. The Guideline (Commentary) on the DCG dates back to 2002 and was updated in 2007. It had to be adjusted now given that it was partially obsolete because of the amendments to the DCG following the entry into force of the Ordinance against Excessive Compensation at Listed Companies (OaEC) on 1 January 2014 and of the Financial Market Infrastructure Act on 1 January 2016, as well as other recent rulings.

The Guideline now includes three columns: The first refers to the DCG Article, the second provides explanatory notes to the SIX Exchange Regulation (SER) practice, and the third lists sanction notices and decisions (as of 1 January 2017). The Guideline is available on the SER website in German, English and French.

The Guideline does not include any substantive changes, but rather clarifications on what to disclose. From a compensation perspective, the following has been clarified:
- A requirement for companies that are not subject to OaEC to mention this in the Corporate Governance (CG) report (Note 25).
- Clarifications on Article 8 DCG “Reporting date” (that is, the balance sheet date) and the need to indicate any subsequent important changes between the reporting date and the publication of the annual report: This includes any essential changes to the composition of the board of directors or the executive committee, or any important factors during the reporting year that are no longer relevant on the balance sheet date (Notes 48-53, 124 + 125).
- A requirement to disclose information on compensation so that market participants can assess whether the chosen compensation model is appropriate in terms of the performance incentives offered. This includes a retrospective disclosure on the changes in compensation over the course of the financial year and an explanation as to why compensation fell or rose in the year under review in comparison to the preceding year (Note 204).
- The need to disclose in the CG report whether a new member of the board of directors or the executive committee received special compensation (“golden handshake”) upon joining the company (Note 223).
- The requirement to disclose the names or at least a clear description of the companies used for any pay comparisons. Terms such as “international companies” or “companies of a similar size” are not sufficient (Note 231).
- A prerequisite to explicitly disclose discretionary decisions (Note 241).
- A requirement to set out the ratio (range or maximum value) between fixed and variable compensation (Note 245).
- The need to provide certain information on criteria used (if any, and if not personal performance targets) to set compensation and their weighting; if complete discretion is used for the weighting reference to this fact must be included (Note 252).

It is also clarified that companies can either reference any rules included in their articles of association with a direct weblink (note however the requirement to not only generally reference the website, but include an exact, direct weblink/path and the need to keep it available for five years from publication, acc. to Article 6) or provide a summary. However, if a summary is provided it needs to be ensured that all essential information is contained (Note 255 et al.).

Further details can be found here.

1 March 2017 — Agnès Blust Consulting is strenthening the team!

It is a great pleasure to inform you that Nicole Brunschweiler is joining Agnès Blust Consulting AG as Principal as of 1 March 2017.

Nicole combines over 15 years of experience in Human Resources and Compensation as in-house expert and external consultant. She served as Senior Compensation Consultant for three global leading consulting firms and held executive positions in the area of Compensation Management for two SMI companies in Financial Services. During those assignments, she covered all sectors and had the opportunity to work with all levels of internal and external stakeholders. Nicole specialized in advising companies and compensation committees on all aspects of executive compensation, including compensation strategy, incentive plan design, disclosure and reporting matters, as well as investor consultation and communication. Nicole and I both look forward to our future collaboration and to continue supporting you and your business on any compensation matter, as needed.

February 2017 — Update on voting guidelines of proxy advisors

Most proxy advisors have published, or will soon, their voting guidelines for the 2017 AGM season.

You will find below a summary of the changes compared to the 2016 voting guidelines and links to the voting guidelines documents of the most relevant proxy advisors for Swiss listed companies.

 

Summary of changes compared to 2016 and link to 2017 voting guidelines

ISS
  • Board: clarification of overboarded director.
  • Remuneration: recommendation against performance-based compensation for Board members.
  • Pay for performance methodology (EP4P): continues to apply to SMI companies.

Link to the 2017 voting guidelines:
https://www.issgovernance.com/file/policy/2017-europe-proxy-voting-summary-guidelines.pdf

Glass Lewis
  • Related party transactions: clarification of the policy regarding Board members who may face a potential conflict of interest from a related party transaction with the company.
  • Director tenure: potential against vote recommendation for long-tenure directors when lack of board refreshment may have contributed to poor financial performance, lax risk oversight, misaligned remuneration practices, lack of shareholder responsiveness, diminution of shareholder rights or other concerns.
  • Say on pay: the remuneration report must provide a clear link between pay and performance. Further, long-term incentive plans should include stretching multi-year performance targets that are primarily of financial nature.
  • Appointment of auditor: in accordance with EU Regulation, the total non-audit related fees paid to an independent auditor may not exceed 70% of the average audit and audit-related fees paid to the auditor during the previous three fiscal years.

Links to the 2017 voting guidelines:
http://www.glasslewis.com/wp-content/uploads/2016/11/Guidelines_Continental_Europe.pdf
http://www.glasslewis.com/wp-content/uploads/2016/01/Guidelines_Switzerland.pdf

Ethos
  • Refusal of the discharge of the board when the company is in a situation of capital loss, over indebtedness, in a definitive moratorium, or there is a material uncertainty on the ability of the company to continue as a going concern.
  • Refusal of the election of a member of the board if he is a permanent member of the executive management. Ethos is however not opposed to executive chairmen when the companies concerned have a CEO.
  • Refusal of the re-election of the external auditor when the total mandate exceeds 20 years.
  • Refusal of a capital issuance request for general financing purposes without pre-emptive rights, when the amount requested exceeds 15% of issued capital.
  • Potential acceptance of higher variable compensation (in % of fixed compensation) than Ethos’ guidelines if majority of the variable compensation depends on the achievement of relative performance targets measured over a long-term period (3 years)

Link to the 2017 voting guidelines:
https://www.ethosfund.ch/sites/default/files/2016-12/LDPCG_Ethos_2017_EN_FINAL2.pdf

zRating/Inrate
  • Board members who represent shareholders with more than 3% of the voting rights will be considered non independent
  • Potential refusal of the apointment of the auditor when the tenure of the auditor is too long (no fixed limit in years but case by case analysis)
  • Changes in the scoring of the governance index on the following items: 1) the tenure of the auditor, 2) competencies of the Board of Directors, 3) disclosure of individual attendance of Board members at board meetings, 4) transparency and understandability of the compensation model

Link to the 2017 voting guidelines:
http://zrating.ch/wp-content/uploads/2017/02/zRating-Abstimmungsrichtlinie_2017.pdf
http://zrating.ch/wp-content/uploads/2017/02/zRating-Kriterienkatalog_2017.pdf

SWIPRA
  • Focus on the disclosure of the working methods of the Board of Directors, especially with respect to its relationship with the executive management, as well as its overall independence and the independent decision-making of its committees.
  • Focus on the disclosure of the skill mapping process and the active shaping of Board’s composition including explanations on how knowledge, skills and other diversity criteria are incorporated in the Board rotation process.
  • Focus on value reporting providing stakeholders with information about the value generation of a company going beyond standard financial information. This includes information on how the corporate strategy and target achievements are linked in incentives, as well as information on corporate social responsibility such as the extent to which corporate social responsibility goals are incorporated in the company strategy, how they are embedded in the strategic risk management process and the compensation system and how they contribute to the desired culture and value generation within the company.
  • Focus on the payout policy (dividends, share buybacks) in relation to the company’s financing strategy and its cash management.

Link to the 2017 summary policy guidelines:
http://swipra.ch/wp-content/uploads/2017/01/SWIPRA-Summary-Policy-Considerations-2017-E.pdf

Further, BlackRock issued their approach to executive remuneration in EMEA for 2017, in summary:

  • Companies should explicitly disclose how incentive plans reflect strategy and incorporate long-term shareholder value drivers and how compensation decisions are in the shareholders’ best long-term economic interests;
  • BlackRock may vote against compensation votes in case of:
    • Misalignment between threshold, target and maximum compensation outcomes and company performance;
    • Lack of demonstration of connection between strategy, long-term shareholder value creation and incentive plan design;
    • Excessive compensation relative to peers;
    • Overreliance on discretion;
    • Insufficient compensation disclosure;
    • Lack of Board responsiveness to significant investor concern;
    • No mention of performance criteria used in variable plans;
    • LTI plan allows for retesting;
    • LTI plan allows for retrospective change of the performance criteria.
  • BlackRock expects certain information to be disclosed:
    • Company’s stated benchmarking peers;
    • Compensation that may be earned at threshold, target and maximum performance;
    • Reason for pay increases year-on-year;
    • Performance metrics used in variable incentive plans and rationale for their selection;
    • Performance achieved broken down by performance metrics.

Further details are provided here:
https://www.blackrock.com/corporate/en-us/literature/market-commentary/blk-approach-to-executive-remuneration-in-emea-jan2017.pdf

23 November 2016 — Update on reform of Swiss corporate law

The Swiss Federal Council has published its opinion on the reform of the Swiss Corporate Law that had been published at the end of 2014 and subject to a consultation period until end of 2014. The Swiss Federal Council has made some important changes compared to the preliminary draft especially:

  • No prohibition of the prospective binding compensation vote
  • No obligation to disclose individual compensation for the members of the executive committee
  • No obligation to include a maximum ratio between fixed and variable compensation in the articles of association

The following provisions have been retained:

  • Minimum gender quota for the board of directors (30%) and the executive committee (20%). If the minimum requirement is not fulfilled, the company must explain why and disclose in the compensation report what measures are taken to achieve the requirement ("comply or explain")
  • Non competition payments are limited to the average compensation of the past three years
  • Upfront payments for new hires to the executive committee are permitted if they compensate for a verifiable financial disadvantage related to leaving the previous employer. Such payments are subject to a binding shareholder vote and must be disclosed in the compensation report
  • The compensation report must be submitted to advisory shareholder vote for all companies with a prospective voting mechanism on variable compensation of the executive committee.

More information can be found here.

August 2016 — Report on executive compensation design in Switzerland can be ordered now

Executive Compensation Report

REVIEW & RETHINK

To Board members, Compensation Committee members, CEOs,
Corporate HR heads, C&B heads

This is to introduce a new report on executive compensation design in Switzerland. It is the first report of its kind that includes over 50 company profiles on board compensation structure and executive incentive plan design!

Did you know that:

  • The majority of short-term incentive plans include a performance condition that is bottom-line driven (earnings measure)? However the number of companies including a measure of top-line (revenue) in their STI plan has increased since last year.
  • Less than half of companies operate a deferral plan for part of the short-term incentive?
  • Half of companies rely on a single performance condition in their long-term incentive plan? Several companies have introduced additional performance conditions in their LTI plan since last year.
  • Half of the performance-based long-term incentive plans include a relative performance condition?
  • One third of companies have minimum shareholding requirements for their executives?
  • One quarter of companies have implemented claw back provisions on either short-term incentive and/or long-term incentive payouts?

FIND OUT ALL THIS,
AND MORE, IN THE REPORT!

The company profiles will provide you specific information each of the organizations of the SMI Expanded on:

  • Structure of board compensation
  • Short-term incentive plan design including target level, maximum payout opportunity, key performance indicators
  • Deferral plans including vehicle (cash/equity), deferral period, vesting conditions, key performance indicators
  • Long-term incentive plan design including target level, maximum payout opportunity, key performance indicators, vehicle (cash/equity), vesting period

In the appendices, the company-specific information is summarized in tables that make it easy for you to compare the various compensation systems.

Order a copy of the report

May 2016 — AGM 2016

Regular update on the say-on-pay voting results of Swiss listed companies at the 2016 annual general meetings.

Download Update (list) 17 May 2016

December 2015 — Update on reform of Swiss corporate law

The Swiss Federal Council published an update on the ongoing reform of Swiss corporate law as a result of the public consultation process, including elements related to the implementation of the Minder initiative into law:

  • The idea to prohibit the prospective vote on compensation amounts has been abandoned
  • The consultative vote on the compensation report should become mandatory
  • The idea to require a maximum ratio between fixed and variable compensation in the articles of association has been abandoned
  • The obligation to disclose individual compensation for the members of executive management has been abandoned
  • The introduction of a mandatory gender representation (quota) in the board of directors (at least 30% of each gender) and in executive management (20%) has been retained

More details can be found here.

November 2015 — ISS pay-for-performance alignment measurement

ISS has published a white paper about the pay-for-performance alignment methodology that they will apply to European companies (STOXX Europe 600) in order to assess whether the link between compensation and performance is appropriate.

This is relevant in the way ISS will assess the compensation system of large Swiss companies, which obviously will influence their voting behavior for the say-on-pay votes.

The purpose of the ISS pay-for-performance evaluation is to identify companies where there appears to be a misalignment between performance and pay. For that purpose, a quantitative evaluation of pay-for-performance alignment has been developed by ISS and includes three quantitative measurements:

  1. Relative Degree of Alignment (RDA):
    This addresses the question whether the CEO pay commensurate with the company performance relative to a comparable peer group (determined by ISS — see below) over a three-year period. The measurement compares the percentile ranks of a company’s CEO pay and of TSR performance, relative to the peer group over a period of three years.
  2. Multiple of Median (MOM):
    This addresses the question whether the CEO is paid significantly more than his peers. The measurement compares the prior year’s CEO pay as multiple of the median pay of the peer group for that year.
  3. Pay-TSR Alignment (PTA):
    This addresses the question whether shareholders’ and executives’ experiences are aligned. The measurement is absolute and compares the trend of the CEO’s annual pay and the company TSR over a five-year period.

The purpose of the ISS pay-for-performance evaluation is to identify companies where there appears to be a misalignment between performance and pay. For that purpose, a quantitative evaluation of pay-for-performance alignment has been developed by ISS and includes three quantitative measurements:

ISS determines a peer group for each company based on the following factors:

  • GICS industry codes
  • Company size in terms of revenues, assets or market capitalization (the choice of one of those metrics depends on the industry)
  • Country: ISS has determined country bands. Switzerland forms a country band together with Germany.

ISS will continue to provide a qualitative review of the compensation system of companies in addition to the quantitative pay-for-performance alignment measurement.

Further information can be found here.

October 2015 — Ethos Study

Ethos has published their study on executive compensation in 2015 in SPI companies. The appendices with the company-specific information, including CEO, Executive Committee and Board of Directors compensation levels can be ordered directly at Ethos.

July 2015 — Report on executive compensation design in Switzerland can be ordered now

Executive Compensation Report

REVIEW & RETHINK

To Board members, Compensation Committee members, CEOs,
Corporate HR heads, C&B heads

This is to introduce a new report on executive compensation design in Switzerland. It is the first report of its kind that includes over 50 company profiles on board compensation structure and executive incentive plan design!

28 November 2014 — Swiss Federal Council issues the draft revision of the Swiss Corporate Law

The Draft revision of the Swiss Corporate Law including the Ordinance against Excessive Remuneration has been published on 28 November 2014. The consultation period runs until 15 March 2015.

The draft includes new proposals on compensation that differ from the provisions of the Ordinance against Excessive Remuneration:

Articles of Association:
Obligation to include a ratio of fixed compensation to total compensation for the Board of Directors and Executive Management in the Articles of Association.

Binding say-on-pay vote:
Prohibition of prospective say-on-pay vote for variable compensation.

Compensation report:
Disclosure of individual compensation of members of the Board and Executive Management.
Inclusion of external mandates for each member of the Board and Executive Management (name of company and function).
Comply-or-explain gender diversity (gender diversity: both gender are represented at least with 30% in the Board of Directors and Executive Management, five-year period to comply).

Prohibited payments:
Prohibition of payments for non-competition agreements that exceed 12 months and that are not justified from a business perspective.

More information can be found here:

GERMAN

FRENCH

26 November 2013 - Ordinance against Excessive Remuneration

The Ordinance against Excessive Remuneration has been published on 20 November 2013 and provides for the provisions to be implemented as of January 2014.

The changes of the Ordinance compared to the draft Ordinance published in June 2013 are the following:

 

Draft Ordinance of June 2013

Ordinance of November 2013

Compensation Report Required for financial year 2013 (agm 2014) Required for financial year 2014 (agm 2015)
Management contracts of top management
  • Must be adjusted to the provisions of the Ordinance until 1 January 2015
  • Must be adjusted to the provisions of the Ordinance until 1 January 2016
  • Notice period of maximum 12 months
  • Fixed term contracts of maximum 12 months
  • Sign-on payments for new hires are allowed if they compensate losses suffered with the former employer (loss of non-vested incentives)
Binding Say-on-Pay
  • At AGM 2015
  • Retrospective vote on variable remuneration (ex post)
  • Prospective vote on fixed remuneration (ex ante)
  • At AGM 2015
  • No default Say-on-Pay vote "set up". The Say-on-Pay vote is to be defined in the Articles of Association
Criminal provisions Applicable in all instances Applicable only in certain instances
(core" per se prohibition)
Board members election
  • Yearly (Board members, Chairman, Remuneration Committee members)
  • Yearly (Board members, Chairman, Remuneration Committee members)
  • No need to elect a substitute chairman, as the board can appoint a substitute until the next AGM
Articles of Association
  • Unclear whether occupational pension schemes (berufliche Vorsorge) are to be included as retirement benefits in the Articles of Association
  • The Articles must contain a provision for a budget for compensation to new hires, to be used for payments until the next AGM
  • Occupational pension schemes (berufliche Vorsorge) do not need to be included as retirement benefits in the Articles of Association
  • The Articles can only contain a budget provision for new hires in case the Articles foresee a prospective vote on compensation
  • The Articles of Association cannot contain a provision for the compensation levels approved in former years to be applicable in case of negative Say-on-Pay vote
  • Articles contain principles of duties and responsibilities of the Remuneration Committee

June 2013 — The Draft Ordinance against Excessive Remuneration has been published on 14 June 2013 and provides for the provisions to be implemented as of January 2014.

The Draft Ordinance against Excessive Remuneration has been published on 14 June 2013 and provides for the provisions to be implemented as of January 2014.