UBS management to face investor anger at pay award

A SUBSTANTIAL number of investors are preparing to confront the management of UBS tomorrow by voting against the Swiss bank’s 2011 pay award and denying executives formal approval of their actions.

The bank’s share price dropped 28 per cent last year and it lost $2.25 billion in a trade in London that caused the largest unauthorised trading loss on record in Britain. For the same period, the bank chose to pay 12 members of its executive board 70.1 million Swiss francs (€58.3 million), compared with 91 million Swiss francs in the year before.

That has prompted advisory groups and institutional investors, including ISS, Ethos, FC and Hermes Equity Ownership Services, to rebel against what they see as a lack of disclosure on how pay is calculated and a high proportion of variable pay.

George Dallas, director of corporate governance at F&C Management, which owns a 0.2 per cent stake, said: “UBS’s bonus pool for its executive board is still too high given the trading scandal, decreasing profits and a drop in market value in the past year.”

Natacha Dimitrijevic, head of European corporate governance at Hermes, said: “Without assurances that large discretionary payouts cannot occur, we cannot vote in favour of the pay scheme.”

Although the exact voting intentions of shareholders will not be clear until the meeting, some investors say they expect the bank to face a more forceful vote than at fellow Swiss group Credit Suisse, where more than a third of voters refused to back its pay award.

The discontent among UBS shareholders also goes beyond the surge in investor activism expressed in non-binding votes on pay at other banks, including Citigroup and Barclays.

A large number of shareholders are expected to refuse to give management a clean bill of health for 2011 due to the trading scandal and UBS’s admission the incident revealed “shortcomings” in its risk management. Under Swiss law, an investor forfeits most rights to sue management in a given year by voting to “discharge” it of responsibility for that period. – (Copyright The Financial Times Limited 2012)