Credit Suisse braced for shareholder revolt over executive pay

Credit Suisse CEO Tidjane Thiam is scaling back investment bank activities. Keystone

Credit Suisse is braced for a shareholder revolt this week over compensation for its top managers, despite the Swiss bank’s executive board agreeing a voluntary 40% cut in its bonuses.

The Swiss bank, which is the midst of a sweeping restructuring, faces criticism for not taking into account a $5.3 billion (CHF5.28 billion) settlement last year in the US over the past sale of toxic mortgage securities when deciding on bumper awards for current managers.

Urs Rohner, chairman, told the Financial Times he had underestimated the sensitivity over pay in Switzerland and elsewhere. “It was more than I expected, and particularly among UK and professional or institutional investors and proxy advisers,” he told the Financial Times.

But Rohner described as “reasonable” the compensation package which will be voted on at Friday’s annual meeting. “I don’t think I have to defend it – I have to explain what we did and we are confident that our shareholders understand why we took the decisions we did.”

Credit Suisse ran into resistance after announcing bonuses worth up to CHF78 million ($78.4 million) for executive board members – despite announcing a loss last year of CHF2.7 billion following the US settlement. It also lifted its overall bonus pool by 6% to CHF3.09 billion as it battled to stop top bankers defecting to rivals.

After shareholder opposition became apparent earlier this month, Credit Suisse’s executive board announced in a hurriedly issued statement that they would take a 40% cut to this year’s proposed short-term bonuses and in long-term incentive awards for 2017.

“They wanted to give a signal to shareholders and the outside world that for them, the most important things is the ultimate success and implementation of the strategic plan,” Rohner said.

But the back down has failed to satisfy investor advisers including Institutional Shareholder Services (ISS) and Glass Lewis, as well as Switzerland’s Ethos, threatening a close vote at Friday’s meeting in Zurich.

ISS in a report last week said the bank’s decisions did “not appear to reflect a well-functioning remuneration process that is in tune with shareholder interests”.

Ethos added that it “still considers the variable remuneration as very high in light of Credit Suisse’s 2016 recorded loss”.

Increasingly controversial

High levels of executive pay have become increasingly controversial in Switzerland. Last week, shareholders failed to approve the 2016 compensation report of Georg Fischer, forcing the Swiss engineering company to re-write its remuneration model.

Before Easter, ABB, a much larger engineering group, had a narrow escape, securing approval for its compensation report with just 59% of shareholders’ votes.

Credit Suisse is in the middle of a three-year restructuring plan under a new management team led by Tidjane Thiam, who took over as chief executive in July 2015. He is expanding Credit Suisse’s businesses managing the wealth of the world’s rich, while scaling back its investment bank activities.

Credit Suisse argues executive compensation is geared towards the successful implementation of that strategy. “If the goal was to measure the performance of this management team in 2016, then I think it was not unreasonable to disregard the [US mortgage securities] fine,” Rohner said.

What is more, Rohner added, if managers had feared an impact from the US case on their compensation they might not have acted in the best interests of the bank in agreeing the settlement. “I don’t want a management team that would have said ‘let’s try to slow this down, let’s kick the can down the road because it will affect our pay’,” he said.

Rohner went on: “Shareholders now have proposals in front of them which are reasonable and we are confident shareholders will understand and support what has been done.”

Copyright The Financial Times Limited 2017