SWITZERLAND Law and Practice Contributed by: Lorenzo Olgiati and Pascal Hubli, Schellenberg Wittmer Ltd
they pay or accept prohibited remuneration (see 4.10 Approvals and Restrictions Concern- ing Payments to Directors/Officers ). It follows that decisions on remuneration for the board and executive management and their subse - quent payment or receipt, respectively, have to be carefully prepared in compliance with Swiss company law and related criminal law. As a general principle, companies cannot validly preclude the liability of directors and executive management in advance. The annual sharehold - ers’ meeting may, however, grant discharge to the directors and the executive management for the preceding business year. As a result, the company and any shareholders who voted in favour of the resolution are precluded from bringing an action against the directors and executive management for any facts that were known to the shareholders’ meeting at that time. Often, companies seek D&O insurance coverage for their members of the board of directors and executive management. 4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers For private companies, it is generally the exclu - sive competence of the board to determine the remuneration of its members and of the execu - tive management. The Swiss Federal Supreme Court has consist - ently stated that remuneration must be justifiable in relation to both the company’s overall finan - cial situation and the relative contributions of the individual board members. This principle also derives from the duty of care and loyalty of board members, which only vaguely limits the board’s discretion in determining the remuneration. The Swiss Federal Supreme Court exercises restraint
in reviewing remuneration decisions as it consid - ers the companies’ governing bodies to be best suited to address such issues. Say-on-Pay Swiss companies with shares listed on a Swiss or foreign stock exchange have to annually sub - mit the board’s proposal on executive compen - sation to the shareholders for a binding vote (binding say-on-pay). The shareholders’ meeting has to vote separately on the proposed aggre - gate amount of compensation for each member of the board of directors, the executive manage - ment and, if any, the advisory board. However, in contrast to certain foreign legislations on execu - tive pay, Swiss law does not impose a limit or maximum amount (cap) on remuneration. Companies are required to specify the details of the vote on compensation in their articles of association. Various models are possible. For example, shareholders may vote on fixed com - pensation for the term until the next ordinary shareholders’ meeting (prospective vote) or on performance-based compensation for the pre - vious financial year (retrospective vote). Many major Swiss-listed companies include in their articles of association a provision for a vote on a compensation cap, whereby the shareholders vote in advance on the maximum amounts of compensation for the respective governing bod - ies for the upcoming business year (prospec - tive vote). If variable remuneration is subject to a prospective vote, the remuneration report must be submitted to the shareholders’ meeting for a consultative vote. According to the revised SCBP, the board of directors may link variable remuneration to spe - cific compliance and other sustainability objec - tives. Furthermore, the remuneration system should be designed in such a way that total
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