Executive Compensation & Corporate Governance Insights – Part 3

In this third and final part of this year’s ExCo Insights, we discuss new methods of pay design and communication with shareholders (and we clarify some misunderstandings regarding established “best” practices). Moreover, we recommend that board members and executives take a broad view of governance matters. We offer the following “Rethinks”:

1. Compensation design is fraught with “best practice” approaches that are actually often not appropriate. Companies should recognise the drawbacks of popular high-powered incentive systems with caps, should reflect on possible unintended side effects of the apparently intuitive use of “relative performance evaluation” (RPE, such as benchmarking to indices), should be wary of the risk-taking incentives of currently fashionable performance shares, and should consider using debt to complement standard equity-based incentives. Simplification – for example, granting straight-up shares rather than complex instruments such as performance shares – also has important advantages.

2. Ongoing communication with shareholders throughout the year, not just ahead of the Annual General Meeting (AGM), is essential to build trust and understanding regarding a company’s specific situation. This is particularly important given that a company also has to deal with powerful proxy advisors who sometimes use checklists and policies that management may regard as inadequate in the context of the concrete challenges a company needs to solve with incentive systems and governance choices.

3. We introduce the 5 Rs of value generation through effective governance: Recruit (select and retain the right board members, executives and employees), Reward (design and live incentives), Report (engage in value reporting and communication), Realise (execute value generation), and Rethink (reflect critically on practice of all four of the other Rs). An effective board has a holistic view of all of these matters. The weakest link of these five elements will determine the overall performance of the company.

Read the ExCo Insights 2017 – Part 3

We look forward to engaging in dialogue with you.

Dr. Robert Kuipers
Partner People & Organisation PwC
+41 58 792 45 30
robert.kuipers@ch.pwc.com

Remo Schmid
Partner People & Organisation, PwC
+41 58 792 46 08
remo.schmid@ch.pwc.com

Executive Compensation & Corporate Governance Insights – Part 2

The first part of ExCo Insights 2017 summarised the key highlights for the largest 100 Swiss listed companies regarding the level of compensation of CEOs and other executives, as well as chairmen and other board members. Then, it studied the much-discussed differences between financial-services (FS) and nonfinancial- services (non-FS) companies – and unearthed some arguably surprising patterns. Specifically, the overall rise in executive compensation since 2009 has mostly been driven by non-FS companies rather than FS companies.

PwC’s ExCo Insights 2017, part 2 now focuses on pay-for-performance in Switzerland. For an overall assessment of this challenging topic, one has to consider multiple perspectives.
We hope that this analysis provides useful background and benchmark information as companies, boards, managers, and policymakers reflect on the adequacy of incentive systems in Swiss companies. Based on the results presented in this part 2, ExCo Insights 2017, part 3 will discuss new methods of pay design and will offer an analysis of the demands of shareholders in the upcoming annual general meeting season.

Read the ExCo Insights 2017 – Part 2

We look forward to engaging in dialogue with you.

Dr. Robert Kuipers
Partner People & Organisation PwC
+41 58 792 45 30
robert.kuipers@ch.pwc.com

Remo Schmid
Partner People & Organisation, PwC
+41 58 792 46 08
remo.schmid@ch.pwc.com

Executive Compensation & Corporate Governance Insights – Part 1

Do you have an opinion on executive pay? Everyone else does! The debate is emotionally charged, but how well informed is it? Every year, PwC endeavours to fuel a better-founded conversation by presenting one of the most detailed studies of board and executive remuneration in Switzerland. Next out is the eleventh edition of Executive Compensation & Corporate Governance Insights, covering the largest listed Swiss companies from 2007 to 2016.

Our research is designed to inform and stimulate dialogue on the hot issue of top management pay. It shows how pay levels have developed over time, how they compare between industries, where trends in pay structure are headed, and whether there’s a connection between pay and performance. It gives insights into the performance criteria that are relevant for determining pay, and how companies can best communicate these issues with shareholders, employees, the media and society at large.

This year’s outcomes are being issued in a number of shorter Insights 2017 releases. Each focuses on a specific issue, though we invite you to read them together to get a unique breadth of perspective. Please note that the longer studies from prior years remain available online.

Insights 2017, part 1 (released October 2017):
The level of compensation of CEOs, other executives and chairs and other board members at Swiss listed companies: valuable insights for board members and executives seeking the right quantum of compensation.

Insights 2017, part 2 (November 2017):
Do Swiss executives get paid for performance? Insights to help board members and executives benchmark the situation in their own companies.

Insights 2017, part 3 (December 2017):
New methods of pay design and an analysis of the demands of shareholders in the upcoming annual general meeting season: analysis to help companies prepare for communication with shareholders.

 

 

 

 

 

We look forward to engaging in dialogue with you.

Dr. Robert W. Kuipers
Partner People & Organisation, PwC
+41 58 792 45 30
robert.kuipers@ch.pwc.com

Remo Schmid
Partner People & Organisation, PwC
+41 58 792 46 08
remo.schmid@ch.pwc.com

P&O global research: ‘The Ethics of Incentives’

PwC is working with Professor Alexander Pepper and Dr Susanne Burri of The London School of Economics on a ground-breaking global study into the ethics of incentives and the fair distribution of income in society.

As a senior business leader, we would very much value your contribution to this piece of work. Our survey takes a maximum of 20 minutes and includes questions which are designed to investigate the complex views we all have about pay fairness. Please click on the link below:

Survey

Please submit the survey by Friday 20th January 2017.

All responses will remain confidential – but there is an option to sign-up for an advance copy of the findings if you so wish.
I hope you will find the time to contribute.

Contact:
Dr. Robert W. Kuipers
PricewaterhouseCoopers AG
Birchstrasse 160, 8050 Zurich
Switzerland

Email: robert.kuipers@ch.pwc.com
Phone: +41 58 792 4530

If you have any questions, please write to us at SurveyAdmin@us.pwc.com

Executive Compensation & Corporate Governance: Insights 2016

Executive Compensation: Focus on Performance and Communication

Since 2007, managers’ pay at SMIM constituent companies has been closing the gap with the remuneration earned by executives at SMI companies; and it is outpacing the rate of increase at small caps. Share-based compensation is becoming a more important factor at large- and mid-cap enterprises. Variable compensation goes up if the company has performed well – and it decreases when the results are poor. Communication with shareholders has gained in significance. These are the findings of the study entitled “Executive Compensation & Corporate Governance: Insights 2016” conducted by PwC Switzerland.

Read the online version of the study here.

 

Portrait of successful senior businesswoman standing in factory shopfloor with digital tablet

You can find more information here.

Ordinance on excessive pay: lessons learned from daily practice

Implementation of the Ordinance against Excessive Compensation (VegüV/ORAb) is progressing well. Find out more about key experience in practice, and read how a balanced say-on-pay system can strengthen a company’s value creation.

Topics of the article

  • More work for AGMs
  • Election of compensation committees and say on pay
  • Information needs for say on pay

Read more here.

Summary

Compensation per se might be less important than issues such as capital structure and dividend policy (which for their part are closely tied to the organisation’s growth strategy), but we’re convinced that systematically implementing a balanced compensation system is a strategic factor in the success of a company.

The new regulatory environment places great demands on everyone involved. For the board of directors and management of listed companies, preparing for say-on-pay votes – in other words drawing up a meaningful compensation report, documentation and arguments for the motions for shareholders – requires a lot of work. Despite this, companies benefit if they adopt a holistic approach, involving human resources, legal, finance and the board of directors at an early stage of the proceedings. A successful say-on-pay system has to be grounded in value-based management and reflected in value reporting. That way it can help management, shareholders and other stakeholders get a uniform understanding of the challenges faced by the organisation and the factors in its success. Ultimately this consensus will result in better, value-creating decisions.