UBS faces pressure from shareholders ahead of an investor meeting next month. The opposition centers around a nearly $12 million windfall for CEO Sergio Ermotti and a prolonged French legal tussle.

UBS' investor meeting on May 2 promises to be a heated one: U.S. investor group ISS is recommending shareholders deny UBS' management and board for 2018 a so-called dispensation, which is a peculiarity of Swiss securities law which exempts managers from liability for their actions, according to Swiss newswire «AWP» (in German). 
 
The move adds to opposition to UBS' pay practices from Glass Lewis, which last week said it will oppose the Swiss bank's compensation report. Geneva-based Ethos views the 73.3 million Swiss franc ($73.1 million) bonus pool for UBS' top 13 executives as inappropriate given the poor performance of the Swiss bank's stock last year.
 
CEO Sergio Ermotti is taking home 11.9 million francs in so-called realized compensation after contingent capital instruments that UBS gave him in 2012 matured. At the helm since 2011, Ermotti is Europe's best-paid banking CEO. His bonus for 2018 is 4.5 times his salary (the metric is capped at 5 times his yearly salary). In contrast to Glass Lewis and Ethos, ISS said UBS' pay practices by and large reflect those of the wider financial industry.
 

Controversial Comparison

The wealth manager has justified the pay with the fact that UBS' net profit rose 12 percent on the year, its capital is solid, and it bought back 750 million francs worth of its own shares last year. Ethos criticized that shareholders suffered a nearly one-third drop in the value of their shares during that time.

From 2016 until last year, shareholders sucked up a more than 28 percent tumble, far more dramatic than the 1.8 percent fall in the wider banking sector, Ethos said. «Ethos believes that UBS must introduce a performance target taking into account the relative performance of the bank’s share price», said the group, which holds sway with many of Switzerland's weighty pension fund voters.

French Probe Irks

The «nay» from ISS on releasing board and management for 2018 is purely pre-emptive, the shareholder advocate said – it is the first time since the financial crisis that shareholders have mounted opposition against top executives.

ISS issued the recommendation in view of UBS' long-running French criminal troubles, where the bank was recently hit with a 4.5 billion euro ($5 billion) fine (the bank shredded the decision and faces at least another two years of appeals process). The shareholder group said the move would simplify any potential legal steps against members of the C-suite later. Ermotti and chief lawyer Markus Diethelm are the architects of a pugnacious legal strategy in France.