U.K. Fund Managers to Investment Banks: Change Bonuses or Else

Investors in Credit Suisse will have their say on revised remuneration proposals at the bank’s annual meeting on Friday, but U.K. fund managers say it’s just the beginning.


As investors prepare to vote on revised bonus proposals for Credit Suisse’s top executives on Friday at the Swiss bank’s annual meeting, U.K. fund managers with big stakes in investment banks are warning them to make changes to their employee bonus schemes or risk a shareholder revolt.

Credit Suisse’s upcoming annual meeting has been in the news for several days, after investors forced the bank to revise downward remuneration proposals amid fears that otherwise they would not be approved by shareholders.

U.K. fund manager Schroders, which managed some £397.1 billion ($490.7 billion) at the end of 2016 in assets, is among those investors that hold a position in Credit Suisse and will be voting at Friday’s annual general meeting. Jessica Ground, global head of stewardship at Schroders, tells Institutional Investor that Credit Suisse is just one example of how European banks have failed to correctly align top executive remuneration with corporate performance.

“We are encouraging all banks to think about it,” she says. “We want to make sure there is a link between pay and performance. Pay has been running ahead of average earnings and of stock market returns. You have to have difficult conversations with companies and say, ‘You haven’t delivered.’”

Friday’s Credit Suisse meeting is being watched closely by buy-side governance teams after a report from proxy advisory firm Institutional Shareholder Services urged investors to vote against the original remuneration plans.


Hermes Investment Management, which manages £28.5 billion in assets and advises on a further £261 billion, is also voting Friday, on behalf of investors in its funds and its stewardship clients. Leon Kamhi, head of responsibility at Hermes, says remuneration structures in the banking sector are still too heavily reliant on the expectation of bonuses, despite recent changes to European regulations.

“Let’s face it, salary is typically not the only element of fixed compensation,” he says. “There is always an expectation that a certain level of bonus will be paid each year. So part of that bonus is acting like a deferred salary.”

Another U.K. manager, Standard Life Investments, has been studying pay in financial services; the effort is being led by Alison Kennedy, its director of governance and stewardship.

Although Standard Life doesn’t own any shares in Credit Suisse, Kennedy tells Institutional Investor that banks often measure success on inadequate, irrelevant, or irrational measures.

“There is still a problem with the targets they are setting for themselves,” she explains. “Some are going down a scorecard route, where they have a range of performance measures. Some are financial, some are risk-based, some regulatory, and some customer satisfaction. They are all too widespread, and we are not sure, as shareholders, that it gives appropriate outcome. You might see a bank that is not performing that well paying out because they received fewer fines that year.”

European banks are becoming increasingly sensitive to growing investor pressure on pay. In February, U.K. banks HSBC and Barclays both cut their bonus pools.

“Institutional investors are now being a lot more public,” says Schroders’ Ground. “There has been a trend towards disagreement, and we have seen a number of pay proposals publicly withdrawn.”