swissVR Monitor: What do you rate as the most important criteria for determining Board remuneration (time spent, responsibility and risk, etc.)?
Manuel Leuthold: The most important criterion is the responsibility linked to the role of member of the Board of Directors. This responsibility mainly depends on the level of risk that Board members face. This varies widely and reflects various factors: the size of the company (turnover and balance sheet), its leverage, the type of activities it is involved in, the size of its workforce, the country in which it operates, the statutory and regulatory framework, and whether it is independent or part of a group of companies that provides support and guidance. And of course, Board members in listed companies face more risks and constraints than those in non-listed companies. Remuneration also needs to reflect the time individuals spend on Board activities and the scope of their role within the Board, such as committee membership and additional roles, such as Secretary, President or Vice-President of the Board. Finally, Board members are not allowed to serve on other company Boards in the same sector to prevent conflicts of interest. This should also be a criterion, especially in relation to mandates on smaller Boards.
swissVR Monitor: What role do long-term goals play when it comes to performance-based Board remuneration? We’re thinking of sustainability/ESG, for example.
Manuel Leuthold: I believe the Board’s long-term objective is to create valuue for the shareholders. If this objective is properly understood, it should encompass all stakeholders and all other major long-term dimensions: these include compliance with the law and regulation, environmental issues, motivating employees, talent recruitment, putting clients and their needs front and centre of the company’s activity, being active members of their communities, and creating a positive and solid culture based on values. Splitting the profit generated between shareholders, employees, the state (via taxes), clients and communities is one of the most important and challenging tasks a Board has to undertake.
A good and sound way of including a variable dimension in Board remuneration in the long term is to offer Board members an opportunity each year to buy a fixed number of company shares at a discounted price. Board members who have no faith in the future of the company will not take up this opportunity and will probably leave their role sooner or later. The remaining members will have to invest, demonstrate commitment and work hard to make their investment grow!
swissVR Monitor: Who within the company should propose payments for Board remuneration?
Manuel Leuthold: The Board should reach its own view on its responsibilities, its expertise and its workload and do some market research to align its remuneration with that of comparable competitors. It should define and discuss a model – as simple as possible – that aligns Board members’ long-term interests with those of the company and then submit it to the AGM and shareholders.
swissVR Monitor: And who should take the final decision on Board remuneration?
Manuel Leuthold: Regulation increasingly requires the remuneration model and the remuneration packages for the Board and management to be validated annually by the shareholders’ AGM. In Switzerland, the revised Code of Obligations includes this requirement from 1 January 2023.
swissVR Monitor: And how will Board remuneration systems change in the future?
Manuel Leuthold: I don’t think remuneration models and levels of remuneration will change much overall. However, the market is moving. The current focus in recruitment of Board members is on diversity, but I think the pendulum will swing back in future to a greater emphasis on professionalism in managing increasing complexity and understanding companies’ business models, the sectors within which they operate, statutory and regulatory constraints (including cross-border dimensions), financial aspects and risk. I also expect there to be broader recognition of the profile of the ‘professional Board member’ alongside that of Board members who fulfil their mandate as an additional part-time activity. Finally, and as long as the labour market remains so tight, the shortage of experienced Board members will probably push levels of remuneration upwards.
Manuel Leuthold
President of the Board of Banque Cantonale de Genève, compenswiss, Varia US Properties, Enki Capital, NID and Patrimonium Asset Management
Manuel Leuthold holds a master’s degree in economics and a master’s degree in law from the University of Geneva. He spent 27 years with UBS, holding a number of positions. As a member of the Executive Committee of UBS Switzerland, he headed the Corporate and Institutional Clients business unit in Switzerland and was then Group Chief Administrative Officer of the Edmond de Rothschild Group for around four years. Since 2016, Manuel Leuthold has served as an independent Board member. He is President of the Board of compenswiss (the Swiss Federal Social Security Funds) and of the Board of Banque Cantonale de Genève. He also serves on the Board of a number of other companies and organisations.