GAM Holding AG Chairman Hugh Scott-Barrett announced a comprehensive review of the Group’s compensation structures and policies on 18 April 2017. The review was conducted by the Board of Directors’ compensation committee, consisting of Nancy Mistretta as the chair, Benjamin Meuli and David J. Jacob, and overseen by Chairman Hugh Scott-Barrett. During the course of this review, the compensation committee engaged extensively with a variety of shareholders to understand their views on various aspects of GAM’s compensation structures.
A revised compensation framework has been developed around four principles: pay for performance, alignment with shareholders’ long-term interests, transparency and the importance of sound risk management. A summary of the key features of the revised compensation framework is set out below.
|Principle: pay for performance|
|Target compensation ratio
A Group-wide target compensation ratio of 45-50% of underlying net fee and commission income.
|Group Management Board (GMB) variable compensation cap
The total granted GMB variable compensation (comprising annual bonuses and long-term incentive plans (LTIP)) will be capped at 5% of underlying pre-tax profit excluding GMB variable compensation. The cap will exclude social security, pension fund contributions and one-time awards for new members.
|Balanced scorecard for annual bonuses
A balanced scorecard of stretch financial and non-financial targets will determine GMB members’ annual bonuses.
A cap for the group CEO1 and group CFO on annual bonus (250% and 200% of their respective salaries) and LTIP awards (face value of 200% of salary).
|Principle: alignment with shareholders’ long-term interests|
|Increased annual bonus deferral
Previously GMB members had 33% of their annual bonus deferred into GAM shares vesting over three years. The deferral is now increased to 50%, with vesting over a four-year period.2
Bonus deferral has also been introduced for non-GMB employees.
|Revised LTIP framework
LTIP awards in the form of performance shares, linked to earnings growth, investment performance and shareholder returns, will be an integral part of the GMB compensation package. Vested awards will not be released until five years after grant.
|Introduction of shareholding guidelines
Shareholding guidelines introduced for all GMB and Board members:
GAM will request retrospective shareholder approval for the GMB’s variable compensation for 2017 and going forward.
The annual compensation report will provide a transparent explanation of compensation decisions, in particular retrospective disclosure of targets for financial performance metrics used in the determination of annual bonuses and prospective disclosure of targets for LTIP awards.
|Principle: sound risk management|
|A well-balanced mix of fixed and variable compensation is combined with deferrals, which include malus and clawback provisions, to encourage sustainable performance and sound risk management.|
As mentioned above, there will be a retrospective vote at the Annual General Meeting scheduled for 26 April 2018 to approve the total value of GMB variable compensation for 2017 including social security, pension fund contributions and the one-time award to the group head of sales and distribution, which was outlined in the 2016 compensation report.
The 2017 compensation report, which was published on 1 March 2018, provides more detail in relation to the revised compensation framework.