Credit Suisse leaders including chief executive Tidjane Thiam offered to have their bonuses cut by 40 per cent after a growing number of investor advisory groups opposed the packages ahead of this year's annual meeting.
Thiam and the executive board volunteered to shrink long-term incentive awards for 2017 and short-term incentive awards for 2016, according to a statement early on Friday on the Zurich-based bank's website. Total board compensation will stay at the level of 2015 and 2016, with no incremental increase in 2017 as previously proposed, according to the statement.
This week, Institutional Shareholder Services (ISS) joined other advisers in denouncing 26 million francs (€24.4 million) in proposed short-term bonuses and as much as 52 million francs in long-term bonuses for the executive board. The awards are too rich for a company that has posted two consecutive annual losses, ISS said. It also criticised a plan to boost compensation for the board of directors to 12.5 million francs.
“I hope that this decision will alleviate some of the concerns expressed by some shareholders and will allow the executive team to continue to focus on the task at hand,” Thiam wrote in a letter to investors posted on the bank’s website. “My highest priority is to see through the turnaround of Credit Suisse which is under way.”
‘Great respect’
In a separate letter, chairman Urs Rohner said directors had accepted the offer with "great respect" and that the panel is highly satisfied with Thiam and the executive board's performance during 2016.
"It's the right move to show respect toward shareholders when investors are waiting for results from the bank's turnaround plan," said Francesco Confuorti, chief executive officer of Advantage Financial, a Milan-based investment firm. "Credit Suisse management inherited a heavy situation, but each manager, even if they're starting from the bottom, should link bonuses to performance."
Swiss law requires companies listed in the country to give shareholders a binding annual vote on executive pay. Credit Suisse’s investors are scheduled to meet on April 28th.
Credit Suisse’s stock fell 33 per cent in 2016, with market turmoil, surprise trading losses and legal cases sapping confidence in a costly turnaround plan. Under Thiam, the company has reorganised operations and scaled back investment banking to free up capital for wealth management. The firm cut some 7,200 jobs last year and plans to eliminate thousands more this year.
Credit Suisse had asked investors to award Mr Thiam 11.9 million francs for his first full year on the job, including more than four million francs each in short-term and long-term compensation on top of a salary of three million francs. Ten other full-year members of the executive board were to receive total pay of 5.9 million francs on average.
Rohner said he and the head of the board’s compensation committee met with shareholders after the proposals were published.
"Relationships between executives, investors and clients are evolving, with the latter having a greater weight on management decisions," said Carlo Alberto Carnevale Maffe, a professor of business strategy at Milan's Bocconi University. "Bonuses cannot be decided by management solely based on a bank's financial statement. They should also reflect the balance sheet, the capital ratios and governance. Investors want that now."
UniCredit chief executive Jean Pierre Mustier acted more preemptively when he announced, five months after taking the helm, that he would take no bonus for 2016, cut his fixed salary by 40 per cent and receive no severance pay should he leave the bank. The decisions were made public in December as the bank unveiled a business plan that included thousands of job cuts and a €13 billion rights offer that was ultimately successful.
US settlement
Investors expressed “a lot of support and recognition for the implementation for our strategy in the past year,” he wrote in his letter. Some had concerns about compensation, pointing, for example, to the bank’s $5.3 billion agreement to settle a US probe into sales of toxic mortgage debt before the financial crisis.
“It’s in the absolute interest of shareholders that we’ve settled the mortgage case in the US,” Mr Thiam said in an interview with Swiss newspaper Finanz und Wirtschaft last month. “Making today’s management pay for this wouldn’t be a good incentive.”
Glass Lewis and Co and Geneva-based Ethos, which advises major Swiss pension funds that may represent up to 5 per cent of the bank’s market capitalisation, also criticised the bonuses. The pair had opposed executive and director compensation packages last year, as well, without success. – (Bloomberg)
