Compensation issue becomes more important at Annual General Meetings
Published: Monday, Feb 26th 2024, 12:40
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Executive remuneration will once again be the subject of much discussion at the 2024 AGMs. This is because shareholders are likely to pay more attention to non-financial matters at the upcoming AGMs and to how company managers are remunerated for their respective performance.
Over the past ten years, shareholders have generally rated the relationship between executive remuneration and company performance as inadequate, writes Swipra, citing several of its own surveys. For the current AGM season, the consultancy firm now expects this critical view to intensify.
The discussion surrounding the integration of sustainability indicators plays a particularly important role here. Surveys have shown that it is often unclear to external observers what exactly is being measured and what performance leads to what levels of remuneration. This is particularly problematic when financial targets and non-financial targets differ and remuneration therefore appears to be a matter of discretion for shareholders. This could damage the credibility of companies, writes Swipra.
The AGM season for listed companies in Switzerland begins at the start of March, with Novartis (March 5) and Roche (March 12), two of the two major pharmaceutical stocks, taking the lead. At Novartis in particular, the discussions surrounding the remuneration of CEO Vas Narasimhan are likely to make waves, as last year he earned a total of just over CHF 16 million, almost twice as much as in the previous year. But Roche CEO Thomas Schinecker was also one of the big earners here last year with 9.6 million francs.
Influence of US rules
The fact that the issue of pay is becoming increasingly important is also reflected in the fact that, according to Swipra, the so-called "pay versus performance" rule has recently been introduced in the USA. It requires companies to disclose certain key figures on executive remuneration and financial performance over the last five completed financial years. In addition, the relationship between remuneration and key performance indicators is disclosed and comparisons are made with other companies. In short: companies must justify why they have paid their managers what salary.
"Globally invested shareholders will also expect comparable information from Swiss peer companies," says Swipra. This means that it is likely to become increasingly difficult for Swiss companies to justify deviations between financial and non-financial targets and actual remuneration.
Vote on non-financial report
Most listed companies in Switzerland must allow their shareholders to vote on their non-financial report for the first time at the 2024 AGM. Although this vote is not binding, according to Swipra it is intended to provide the Board of Directors with "valuable, direct feedback from shareholders on how well the company is implementing and reporting on its sustainability strategies".
It is not yet clear how these votes will go. However, the experts at Swipra assume that the non-financial reports will still receive high approval rates at the 2024 AGMs because many investors are voting on them for the first time.
However, this coordination is likely to become increasingly challenging over the years, according to the report. This is because, over time, companies could be judged more and more by their own past promises.
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