ZURICH: Switzerland's biggest banks and insurers will have to adhere to new compensation rules requiring them to defer the bulk of managers' bonuses and to strictly align pay to performance, Swiss regulators said.
With the new rules, Switzerland is joining a growing number of countries choosing to regulate the way top bankers are paid to discourage risky investment decisions inspired by short-term gains rather than sustainable profitability.
The new Swiss rules will come into force on Jan 1, 2010 for the country's seven largest banks and five biggest insurers, Swiss regulator FINMA said in a statement, without naming them. There will be no cap on executives' bonuses, FINMA added. "The experience of last year has showed us that compensation schemes play a role in the risk management of financial institutions," FINMA said in its statement. "Remuneration schemes can create false incentives which may lead to inappropriate risks being entered into, threatening the business and profitability of a financial institution and, at the end of the day, its stability," it said.
The Swiss regulator also said it would welcome the introduction of clawbacks on bonuses when performance was poor, such as it is already the case with the country's top two banks, UBS and Credit Suisse.
Leaders from the Group of 20 nations adopted guidelines on curbing bonuses at a meeting in Pittsburgh in September.
Credit Suisse unveiled already last month a new compensation scheme that it said would fully comply with new G20 standards.
UBS, which received state aid as it was hit by the subprime crisis last year, has said in an internal memo seen by Reuters it also plans to change its compensation structure, but has not yet unveiled its new pay structure. UBS' hefty bonuses and salaries of bank managers caused public outcry in Switzerland, leading former UBS chief Marcel Ospel and other ex-board members to return 33 million Swiss francs ($32.71 million) in payments.
UBS was also sharply criticized this year for increasing bankers' pay after having received state aid, but its then newly-appointed new Chief Executive Oswald Gruebel said UBS had to pay market salaries to retain stuff at a difficult time.
(China Daily 11/12/2009 page17)