infonet-economy

The purpose of the paper is to suggest a reasonable and fair annual compensation amount, after investigating the legal regulations and practice. To do so, the paper mentioned about Swiss Company law, Swiss Stock Exchange regulations, and even a legal case regarding compensation of directors. The question is the fairness of compensation and the ethical responsibility of those determining on the remuneration. Even though there are some statutory regulations to protect the rights of minorities, such as article 678 CO, in one case, court decided to reduce the compensation of board of director in half. In fact, it is still hard for minority shareholders to fight with majority concerning the high compensation amounts. Swiss Code of Best Practice recommended having a compensation committee, including independent members, to decide on fair remuneration amount based on both the short term and long term performance of a company and individual performance. Compensation transparency is more important for shareholders and society now. Therefore, new regulation, such as 663bbis, forced publicly traded companies to disclose the remunerations in detail and transparently. However, transparency is still the problem for SMEs and non-publicly traded companies because these regulations are only for public companies. In practice, BDO conducted a study on the average compensation (basic fee) of board members in SMEs. In general, it was noted that for the year of 2008, board president's, vise-president's and member's compensation amounts were CHF 32.698, CHF 24.379, and CHF 16.172 respectively. However, Trade newspaper (Handelszeitung) performed annual survey on compensation of directors for large companies listed on Swiss Stock Exchange. It was found that average compensation amount was CHF 88.000 per year in 2008. To determine the fair compensation, law does not provide any specific amount. However, it stated that the general assembly or the board shall determine the specific amount of the fee. The general assembly or shareholders committee, consisting of three to five shareholders, are entitled to determine the minimum level of individual compensation (basic fee or salary). The compensation of the board consists of several components: basic fee (fixed or variable), profit-sharing (bonus), and reimbursement of expenses, shares and/or share options. However, author believes that compensation in form of share and share option should be evaluated critically, since they can lead to completely unreasonable compensation. It is also critical to recognize severance payments to directors and members of the management (so-called golden handshake or golden parachutes). Finally, after the detailed research in law and in Swiss firms, author concluded that there are certainly significant differences of compensation levels depending on the size, sector, and complexity of the company, which is also in line with BDO's study. In this study, the highest annual remuneration of CHF 33.692 is in banking sector. In general, the author suggested a minimum basic fee of CHF 22.000 per year for a member of the board of director; however, it may alter based on sector and company size.