For the first time ever, Swiss banks have to haggle with their shareholders over top management pay. It is a power struggle that obeys one brutal principle.

The change of heart came at the witching hour. Credit Suisse suddenly backed down on part of their bonuses shortly after midnight on Good Friday.

It was a historical decision which came after massive pressure from three substantial shareholder representatives – U.S.-based Institutional Shareholder Services and Glass Lewis, as well as the Swiss Ethos Foundation.

Asset manager GAM also caved on pay, under pressure from activist hedge fund RBR. 

«Too Little, Too Late»

If Credit Suisse was hoping to pre-empt a fiery shareholder meeting next week, the conflict has not been fully resolved: Glass Lewis termed the climbdown «too little, too late», Ethos stuck to its guns, while ISS softened its stance.

Credit Suisse's shareholder meeting still promises to be the banking equivalent of a gladiator battle. There is a touch of spring in the air in the Swiss corporate landscape, known for its sky-high executive salaries and cozy networks.

Three years after rules governing excessive pay championed by Swiss businessman Thomas Minder came into force, are the days of exorbitant bonuses in Switzerland finally over?

Nearly 14 Million For Ermotti

It is premature to assess the latest events at CS and GAM as a victory for shareholder democracy, finews.com concludes. To understand why, look no further than the other Swiss banking giant, UBS.

There, CEO Sergio Ermotti earned a total of 13.7 million francs in 2016. Even though that was a pay cut, it was still significantly more than his CS counterpart Tijane Thiam, more than Ana Botin at Spanish Santander, more than the HSBC boss Stuart Gulliver and more than three times the compensation of John Cryan, the former finance chief of UBS who is now CEO of Deutsche Bank.

One of the Highest Paid Bankers

UBS' chairman Axel Weber saw his pay increase from 6.03 to 6.07 million francs last year – the German central banker is now one of the financial sector's highest-paid bankers. 

While UBS isn't in Credit Suisse's precarious state, the Swiss giant didn't exactly shine last year. Growth was below expectations in some areas, especially in Asia and with ultra-high net worth clients.

The inflows of new money in certain UBS market regions were disappointing. On top of that comes the threat of legal action in the tax row with France and with dud mortgage securities in the U.S.

No Outcry at UBS

Yet no outcry has been heard from shareholders of the banking giant. On the contrary, ISS, which can marshall between 15 and 20 percent of votes, will support the UBS board on all points at a May 4 shareholder meeting.

ISS did express reservations about the pay plan, but there were «indications» that the remuneration of the bank’s top bosses corresponded to the bank’s performance, the advisors reassured shareholders.

Unforgivable for Investors

The ISS vote, seen by finews.com, delivers a clue as to why CS and GAM in contrast to UBS now have to bow to the pressure: in a word, performance.

Big investors will tolerate high salaries, as they have done for years: after all, they often earn considerable salaries themselves in the finance sector. Continuing losses and strategic indecision, on the other hand, are absolutely unforgivable for professional investors.

Performance Pressure

Institutional investors are sometimes also under performance pressure. In a low-interest environment, pension funds plead for returns that will allow them to fulfil their pension promises. Active fund managers, seeing client money slip away to passive products, simply cannot afford to have losses on their investments.

This imperative is also at work outside the financial industry,  where shareholders in industrial firm ABB gave the board a fright: more than 40 percent of shareholders voted against their «decharge,» or dispensing them of any potential legal liability. Shareholders opposed the pay plan of ABB, where a South Korean fraud case came to light, in roughly the same measure.

Investor's Patience is Wearing Thin

With its Good Friday reversal, Credit Suisse undoubtedly wants to avoid an ABB-style rout.

As the votes of ISS and others suggest, investors’ patience is wearing thin. If investors snap, the shareholders will follow the brutal principle of the gladiator battles in Ancient Rome: those who are lying wounded on the ground usually get the thumbs down from the crowd.