Zurich, March 23, 2016 — CEO compensation at leading stock-exchange listed companies in Switzerland once again rose in 2016 compared to the previous year. At the biggest companies, those listed on the Swiss Market Index (SMI), the average increase in direct compensation was around the 11% mark. At companies on the SMI Mid (SMIM), the 30 largest mid-cap firms not listed on the SMI, the average increase was around 4%. The highest CEO compensation was that enjoyed by the head of UBS, at CHF 14.0 million one of the highest CEO compensations in Europe.
These are the results of the new study released by management consulting firm hkp/// group Switzerland "CEO compensation 2015 in SMI & SMIM companies". The analysis is based on data from compensation reports published by 18 SMI and 21 SMIM companies in the period to March 22, 2016.
"The background to the current developments in CEO compensation in Switzerland is that some of these companies enjoyed good business results despite a difficult market environment. Company performance and compensation often develop in parallel — which is good news," says Martin Pfändler, Senior Partner at hkp/// group.
Performance-related variable payments are driving developments in compensation
On the basis of published compensation reports, average direct compensation for the 14 CEOs of SMI companies who remained in office throughout the year was approximately CHF 7.9 million. This represents an increase of around 10.8% on 2014. For the CEOs of the smaller SMIM companies, the figure was CHF 3.7 million, up 4.2% on the previous year. Just six SMI and SMIM companies increased the fixed compensation of their CEOs in 2015, by between 2 and 15%. This increase in direct compensation is primarily due to changes in variable compensation components depending on company performance, especially stock-based long-term compensation. Annual variable compensation (bonus) makes up around 18% of direct compensation for SMI CEOs and 32% for SMIM CEOsMulti-year variable compensation makes up around 55% of direct compensation for SMI CEOs and around 38% for SMIM CEOs.
"The figures show that SMI companies, with their very high market capitalization, place more weight on long-term variable compensation components than the medium-large companies on the SMIM," says Melanie Wagner, Senior Manager at hkp/// group. She adds that the figures for multi-year variable compensation (generally based on stock) are not the same as the amounts actually paid out. "The variable long-term compensation is not certain for the individuals in question for another three to four years. The company's performance during this period determines the actual amounts paid out, which may well end up being less or even zero," she explains.
Size and complexity reflected in compensation levels
With regard to the level of CEO compensation in Switzerland, the large multinationals such as UBS, Novartis and Roche head the rankings, as in previous years. Once again, the two CEOs of Richemont are near the top of the list for Switzerland.
"Market capitalization, industry, business model complexity and international activity are the core factors determining the compensation of CEOs, plus the strong orientation toward company performance," says hkp/// group Senior Partner Martin Pfändler. These factors are also reflected in the differences between the indices. For example, average CEO compensation at SMI firms is roughly twice that of CEOs at SMIM firms.
Compared to other countries, the compensation of top Swiss CEOs is still below average US levels (Dow Jones companies). However, different practices when it comes to reporting compensation levels mean that we need to make adjustments when comparing figures. Swiss companies usually give the "allocation value" for stock-based long-term compensation components; this needs to be adjusted to make it comparable with the "fair market value" that is the standard international measure. The long-term compensation and hence direct compensation of the best-paid Swiss CEO, the CEO of Roche, for example, must be adjusted up to CHF 15.0 million. That places him twentieth in the international rankings.
Further improvements in transparency
Based on their examination of the latest compensation reports published by SMI and SMIM companies, the authors of the study conclude that practices in the area of compensation disclosure continue to improve. Some three-quarters of SMI and SMIM companies now present their compensation reports to their annual general meetings for consensus-based approval. "The companies present the key elements of their Board compensation to their shareholders in a clear, straightforward form and thus account for the costs involved," says Melanie Wagner, Senior Manager at hkp/// group.
On January 1, 2014, the Swiss Ordinance against Excessive Compensation with respect to Listed Stock Corporations (VegüV) came into force. The authors of the study say that the impact of the regulation is clear. As expected, the changes in legislation have not affected the levels of compensation but rather the transparency and clarity of the compensation structures and mechanisms used.