November 17, 2008 / 11:45 AM / in 9 years

UBS adopts new exec pay model, axes 2008 bonuses

<p>Birds sit on wires in front of the logo of Swiss bank UBS at the Paradeplatz square in Zurich October 16, 2008.Arnd Wiegmann</p>

ZURICH (Reuters) - Swiss bank UBS axed bonuses for top executives on Monday and said it would introduce a more transparent pay system in the most far-reaching changes on pay at a top European lender during the credit crisis.

UBS, which is struggling in the subprime crisis and whose shares slumped to a new all-time low on Monday, said Chairman Peter Kurer, Chief Executive Marcel Rohner and other executive board members would not get any bonuses this year.

Starting from 2009, top managers' bonuses will be blocked for at least three years instead of being paid immediately and executives will receive variable pay if UBS results warrant.

Under the new system, the chairman will only be awarded a fixed salary. Kurer's fixed-pay salary for this year was 2 million Swiss francs ($1.68 million), he said on Monday.

"UBS is fully committed to taking its responsibilities seriously and correcting previous errors," the bank said.

Other major European players like Royal Bank of Scotland, Lloyds TSB and HBOS will not pay bonuses after taking British government cash and some top executives at Deutsche Bank have waived their bonus.

But UBS is the first large European lender to introduce a radical overhaul of its executive pay system.

Hefty bonuses for bankers have come under fire in the crisis for encouraging risk-taking rather than a longer-term strategy.

As part of a Swiss government bailout for UBS agreed a month ago, the state demanded a say in future compensation policy after heated criticism in Switzerland that prompted about thousand people to protest outside the bank on Saturday.

The Swiss media has targeted in particular UBS' ex-chairman Marcel Ospel, who fostered UBS' risky strategy in the U.S. subprime market and was forced to quit in April. UBS said it was conducting a legal review of whether bonuses awarded to former executives could be clawed back.

HISTORIC LOW

UBS shares were down 4.4 percent at 9:12 a.m. EST at 13.86 Swiss francs, slightly outperforming that DJ Stoxx index of European banks, which was down 4.6 percent.

The stock had earlier dropped to a new historic law of 13.51 Swiss francs as pressure mounted over a U.S. tax fraud probe and investors grew increasingly concerned about money outflows.

UBS said last week Raoul Weil, head of wealth management and a board member, would step aside after U.S. authorities charged him with conspiring to help rich Americans avoid paying taxes.

But Kurer told a conference call that the pace of client withdrawals, which amounted to a record 49 billion Swiss francs for wealth management in the third quarter, was still slowing.

UBS shareholders will vote on the new pay scheme at an extraordinary shareholder meeting on November 27, which also has to approve a government-sponsored rescue package allowing UBS to offload the vast majority of its illiquid assets while getting a 6 billion Swiss franc cash injection from the state.

Shareholder advocacy group Ethos welcomed the new rules at UBS but said they would still not prevent excessive pay.

"UBS does not intend to limit the variable part of the remuneration, by capping for example the bonus in terms of base salary or by setting a maximum amount of shares to be awarded under the long term incentive plan," Ethos said.

"Consequently Ethos has concerns that the new system will not prevent UBS from paying, in the future, remunerations that could be deemed excessive."

Editing by David Holmes and Hans Peters

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