Credit Suisse avoids shareholder bonus revolt

Credit Suisse CEO Brady Dougan, right, and chairman Hans-Ulrich Doerig get settled at the bank's general assembly in Zurich Keystone

Credit Suisse shareholders approved controversial bonus payments to top managers by voting in favour of the bank’s compensation report at its annual general meeting.

This content was published on April 30, 2010 minutes

The bank avoided a UBS bank-style rebellion inflicted on its rival earlier this month, but some 30 per cent of shareholders rejected the pay and bonus system – three times the amount that expressed disapproval a year ago.

Shareholders backed the compensation report by 415 million votes to 182 million. The vote came a day after the Swiss government unveiled plans to introduce a special income tax on bonus payments of more than SFr2 million ($1.84 million).

Credit Suisse has been plagued by the same negative publicity that has surrounded many other international banks in recent months.

Last year, 13 executives received SFr149 million in pay and bonuses compared with the SFr107 the 15 executives were paid in 2008. Compensation for board members doubled to SFr22.3 million in 2009.

Credit Suisse bosses may have been nervous that they would suffer a similar reverse as UBS at its annual general meeting (AGM) two weeks ago. UBS shareholders did vote in favour of a compensation strategy but rejected a recommendation to exonerate 2007 directors and executives from all blame for troubles that led to a government bailout.

Huge sums

Credit Suisse shareholders clearly heeded the advice of chief executive Brady Dougan, who urged them to vote in favour of the compensation report if they wanted the bank to “continue to perform”.

“We have endeavoured to strike the right balance between paying our employees competitively, doing what is right for our shareholders and responding appropriately to regulatory initiatives, as well as political and public concerns,” he told the AGM.

Dougan and other executives were recently awarded massive payouts from a previous share-based performance plan. Earlier this year, Dougan was awarded SFr71 million worth of shares from the scheme that started in 2005.

As the scheme was not part of the 2009 compensation plan, shareholders were not entitled to vote on payments that totaled SFr3 billion for the 400 senior employees.

Dougan had already received SFr19.2 million in basic pay (SFr1.25 million), bonus and pension payments last year – seven times higher than the amount he received in 2008.

Several of the 2,394 assembled shareholders voiced their disapproval at such high figures. Dominique Biedermann, managing director of sustainable investment fund Ethos Foundation, criticised the compensation report for lack of transparency.

Lehman losers

A group of clients is currently pursuing compensation for losses suffered on Lehman Brothers products sold to them by Credit Suisse before the United States bank went bust. One such client spoke out against “exorbitant and indecent” bonuses.

“Do you spare a minute to think about our suffering as you spend your multiple millions?” he asked executives and board members.

Another shareholder, resplendent in a Santa Claus outfit, stated: “You may think I look ridiculous, but I am not as ridiculous as you look as you fill your pockets with millions of francs.”

Last weekend, the business friendly Radical Party (FDP) launched a surprise attack on excessive bank bonuses and recommended that Credit Suisse shareholders vote against the bank’s compensation report.

The centre-left Social Democrats (SP) have long been critical of “fat cat” bonuses while the Ethos Foundation has also voiced disapproval of large pay packets at many Swiss firms, including Credit Suisse.

Board approved

Shareholders also approved the re-election of all board members - whose terms were due to expire - for another three years.

Jassim Bin Hamad Al Thani and Robert Benmosche were elected as new members to the board.

Earlier in the day Credit Suisse had announced that current employee David Mathers had been chosen to replace Renato Fassbind as chief financial officer. Fassbind will retire on October 1.

Credit Suisse reported an annual profit of SFr6.7 billion, compared with an SFr8.22 billion loss in 2008. Net income for the first three months of this year was SFr2.1 billion, slightly higher than the same quarter last year. The bank also attracted net new assets of SFr26 billion in the first quarter of 2010.

Matthew Allen, in Zurich

Bonus politics

Following the financial crisis and the bail-out of several banks around the world using taxpayers’ money, many countries are debating how to curb pay and bonuses in the financial sector.

Public, media and political criticism was sharpened at the start of this year when some banks, particularly in the United States, showed signs of returning to remuneration practices that showered vast sums of wealth on top employees.

France and Germany have gone so far as to propose legislative caps on bonuses. Switzerland, and other countries, have ruled out such an approach.

In the meantime, Switzerland, Britain, France and the Netherlands are among countries to negotiate compensation restrictions with banks.

The Swiss Financial Markets Supervisory Authority (Finma) introduced regulations at the start of 2010 that gives banks one year to start proving that their staff compensation practices do not encourage short-term risky behavior or compromise their stability.

Under the rules, part of the variable compensation would be held back for a number of years and could be clawed back if long-term targets were not met.

Financial institutions were also ordered to be more transparent about their compensation strategy.

Credit Suisse and UBS had already applied similar strategies before the regulations came into force.

The rules apply to the seven largest Swiss banks and five biggest insurance companies, but could be extended to other institutions if necessary.

In addition, several big company names in Switzerland have bowed to pressure from the Ethos Foundation to allow shareholders a consultative vote on remuneration policy.

This week, the Swiss government outlined proposals to introduce a special income tax on bonuses of over SFr2 million.

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