ISS Says GAM’s Executive Bonuses Should Be Capped

The proxy voting firm is urging shareholders to vote against a bonus compensation measure at Thursday’s annual meeting.

Michele Limina/Bloomberg

Michele Limina/Bloomberg

Institutional Shareholder Services is encouraging investors to vote against an executive bonus measure at GAM Holding ahead of the Swiss asset management firm’s shareholder meeting on Thursday.

Specifically at issue is a cap — or lack thereof — on certain executive bonuses. At GAM, management bonuses for executives outside of the CEO and chief financial officer are capped relative to the firm’s underlying profit before taxes. According to ISS, that means absolute limits on these bonuses do not exist.

Glass Lewis, another major proxy advisory firm, is recommending that shareholders accept the bonus measure.

Over the past year, GAM has been working to implement a restructuring program to contain the fallout from a 2018 whistleblower investigation that prompted the liquidation of its absolute-return unconstrained bond funds and the dismissal of the director of those funds for “gross misconduct.”

As a result of the investigation, the firm lost assets and high-level staff.

According to ISS, GAM has put a true cap on the bonuses that the firm’s chief executive officer and CFO can receive. However, this is not the case for other executives. According to ISS, GAM’s disclosures of the bonus scheme are “vague” and there is a “lack of communication” surrounding how much certain managers stand to earn.

ISS had advised shareholders to vote against the same measure in 2019. Although the measure passed, 27.2 percent of shareholders voted against it. In 2018, 41.9 percent of shareholders voted against a similar measure, according to ISS.

“This level of dissent can nevertheless be considered high in the Swiss market context,” according to the ISS report. “The compensation report does not mention whether the company engaged with shareholders and does not report major changes to the system, other than that no variable compensation was awarded in 2019.”

A spokesperson for GAM said via email that the asset manager “respects shareholder democracy.”

[II Deep Dive: Nearly Half of GAM’s Board to Step Down]

Proxy advisor Glass Lewis reported that it also had concerns over the structure and disclosure of incentive plans. However, Glass Lewis believes that GAM addressed those issues over the past two years.

“We believe any concerns regarding a disconnect between pay and performance will be mitigated by the board’s decision not to allocate any variable compensation to any executive for the past fiscal year,” the report said.

Board materials for GAM’s April 30 meeting show that none of its management team received bonuses last year because they were “assuming accountability for the weak business performance through 2019.”

The Swiss firm has also said it has “significantly reduced” the annual discretionary bonus pool for employees who are not a part of the management team, as well as increasing the portion of that pool that is made up of company shares, rather than cash.

Twenty-one other measures are also slated for voting at Wednesday’s meeting, including the re-election of several board members. Of them, ISS only opposes the bonus measure.