The Advisors' Blog

– Broc Romanek, CompensationStandards.com

I’m starting to play around, making short videos on various corporate topics – including some related to executive pay. Here is a 80-second video describing what is happening in Switzerland:

Frequently Asked Questions on the Minder Ordinance

by Matthew Roberts of ISS’ European Research

In March 2013, voters in Switzerland approved a national referendum known as the Popular Initiative “Against Rip-Off Salaries” by a 68-percent majority, with the referendum receiving majority-support in all Swiss cantons. The referendum, also colloquially known as the Minder Initiative after its main proponent, businessman-turned-MP Thomas Minder, took aim at executive and director pay practices at public companies by seeking to transfer certain decision making powers from the board of directors to shareholders. The referendum also called for bans on certain forms of compensation (such as severance and remuneration in advance), a voting requirement for Swiss pension funds, and criminal sanctions for failure to comply with any of the various stipulations contained the initiative.

The Swiss parliament is responsible for transposing the Minder Initiative into law, and this is expected to take several years. However, the terms of the Minder Initiative required the executive branch of the Swiss federal government, the Federal Council, to enact an ordinance within one year of the referendum’s passage for the purpose of transposing the referendum into law on a provisional basis. The final version of the Federal Council’s ordinance (known as the Ordinance Against Excessive Remuneration at Listed Companies, hereafter “the Ordinance”) was published on Nov. 20, 2013, and the new requirements of the ordinance took effect Jan. 1, 2014. The Ordinance contains numerous new requirements and regulations that apply to all listed Swiss companies and Swiss pension funds, including a series of voting items that will need to be included on the agendas of Swiss company AGMs in 2014 and beyond. This document focuses exclusively on these new voting items.

The purpose of this publication is to provide ISS clients with information on the new voting items introduced by the Ordinance Against Excessive Remuneration at Listed Companies, as well as to provide insight, context, and analysis of how these items are likely to be proposed by companies in practice. In addition, this publication describes the analytical approach that ISS will take when evaluating these voting items. This publication is not a policy document and does not replace the ISS policy approach to evaluating Swiss companies; rather, it clarifies how ISS will apply its benchmark voting policy in 2014 in light of the aforementioned changes to Swiss law.

What Are the New Voting Items Shareholders Will See?

The Ordinance creates a series of new voting items that shareholders must resolve on at each ordinary annual shareholders meeting as routine business. All of these voting items have binding effect. They are:

Mandatory from 2014:

– Election of each member of the board of directors on an individual basis.
– Direct election of the chairman of the board of directors.
– Direct election of the members of the compensation committee of the board of directors on an individual basis.
– Election of the independent proxy.

Mandatory from 2015:

– Approval of the aggregate compensation of the board of directors.
– Approval of the aggregate compensation of executive management.
– Approval of the aggregate compensation of the advisory board.

In addition, aspects of compensation policy and other items directly or indirectly related to the compensation of members of the company’s governing bodies, including measures intended to prevent circumventing the rules of the Ordinance, must be established in each company’s articles of association. This will require shareholders to approve various article amendments, which will also therefore appear as voting items in 2014 and 2015.

What Companies Are Impacted, and From When?

The Ordinance affects Swiss law and applies to all listed companies incorporated in Switzerland (including those that may be listed on foreign stock exchanges such as the NYSE or NASDAQ). It does not apply to companies incorporated outside of Switzerland with a listing on a Swiss exchange.

Companies impacted by the law are required to implement most of the new voting items at their first ordinary shareholders meeting following implementation of the Ordinance (i.e. 2014). The first major new voting resolutions that will come into effect for 2014 are the annual individual board elections, direct election of the board chairman, and direct election of the compensation committee members.

Companies will not be required to submit binding votes on compensation and amendments to the articles of association until the second AGM following implementation of the Ordinance, i.e. 2015.

What Will Be the Impact on Shareholders’ Voting Workload in 2014?

As noted above, Swiss companies will not be required to submit resolutions on director or executive compensation or article amendments until 2015. However, in 2014, the number of voting items for Swiss AGMs will increase due to the requirements for annual board elections, direct election of the board chairman and compensation committee members, and election of the independent proxy. In 2013, there was an average of 12 voting items at the ordinary general meetings of companies in the blue chip SMI index. In 2014, this average is expected to increase to somewhere in the neighborhood of 25 voting items.

Many companies are expected to include resolutions on article amendments in 2014, even though this is not mandatory until 2015. A few companies can also be expected to voluntarily give shareholders binding votes on compensation in 2014, while others are expected to give a non-binding vote on the compensation report as recommended by the Swiss Code of Best Practice. Some companies are also expected to run a “dress rehearsal” for 2015 by submitting non-binding versions of the resolutions on compensation required by the Ordinance.