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Minder Initiative - Implementing Ordinance (VegüV)

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  • 1. Minder Initiative Implementing Ordinance (VegüV) Zurich, 21 November 2013
  • 2. Starting Point ● 3 March 2013: Adoption of Minder-Initiative by Swiss people and cantons ● Art. 95 of Swiss Constitution (Const.) was supplemented by the following third paragraph: „3For the protection of the economy, private property and shareholders, and to guarantee sustainable corporate governance, the law shall regulate Swiss companies limited by shares listed on stock exchanges in Switzerland or abroad in accordance with the following principles: a. The general meeting votes on an annual basis on the total amount of all remuneration (money and the value of benefits in kind) given to the board of directors, the executive board und the board of advisors. It elects on an annual basis the chairman of the board of directors, the individual members of the board of directors and the remuneration committee, and the independent representatives of voting rights. Pension funds vote in the interests of their insured members and disclose how they have voted. Shareholders may vote remotely online; they may not be represented by a governing officer of the company or by a custodian bank. b. The governing officers may not be given severance or similar payments, advance payments, bonuses for company purchases and sales, additional contracts as consultants to or employees of other companies in the group. The management of the company may not be delegated to a legal entity. c. The articles of association regulate the amount of credits, loans and pensions payable to governing officers, their profit-sharing and equity participation plans and the number of mandates they may accept outside the group, as well as the duration of employment contracts of members of the executive board. d. Persons violating the provisions under letters a-c are liable to a custodial sentence not exceeding three years and to a monetary penalty not exceeding six times their annual remuneration.” ● Art. 197 Const. was supplemented with the following transitional provision for art. 95 para. 3: “10. Transitional provision to art. 95 para. 3 Until the statutory provisions come into force, the Federal Council shall issue the required implementing provisions within one year of the adoption of Article 95 paragraph 3 by the People and the Cantons.” ● The implementing ordinance of the Federal Council (Impl. Ordinance) will enter into force on 1 January 2014. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 1
  • 3. General provisions of the Impl. Ordinance (Verordnung gegen übermässige Vergütungen bei börsenkotierten Aktiengesellschaften, VegüV) Topic Contents Scope Applicable to all corporations (Aktiengesellschaften, AG) within the meaning of art. 620 et seq. of the Swiss Code of Obligations (CO), whose shares are listed in Switzerland or abroad (art. 1 Impl. Ordinance). Relation to existing law The provisions of the Impl. Ordinance supersede conflicting provisions of the Swiss Code of Obligations, i.e. of the Swiss corporate law (art. 1 para. 2 Impl. Ordinance). Effective date On 20 November 2013 Federal Council published final version of Impl. Ordinance which will enter into force on 1 January 2014 1 January 2014. Detailed transitional provisions (art. 26 - 32 Impl. Ordinance). © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 2
  • 4. Overview on selected provisions of the Impl. Ordinance Topic Contents Compensation Prohibited forms of compensation to members of board of directors (BoD), executive committee (ExCom) and advisory board (if any) (the „Executives“): Severance payments based on agreements or the articles of association, payments in advance, as well as bonuses for the takeover or transfer of businesses or parts thereof within the group are prohibited. The same applies to loans, credits, pensions outside occupational pension schemes (“Pensions”), performance based compensation (erfolgsabhängige Vergütungen) and the granting of equity securities and options, to the extent such loans, credits and forms of compensation are not governed by the company‘s articles of association. However, still permitted are: Compensation (i) owed up to the formal termination of an employment or mandate agreement with a duration or notice period of max. one year and (ii) for the loss of claims against the former employer (Antrittsprämien) (art. 20 Impl. Ordinance). Compensation to Executives for work in entities directly or indirectly controlled by the company is prohibited, provided such compensation were either prohibited if directly granted by the company, or not contained in the articles of association, or not approved by the AGM (art. 21 Impl. Ordinance). Since pre-existing (altrechtliche) employment agreements will only have to be adapted to the Impl. Ordinance by 1 January 2016 (art. 28 Impl. Ordinance) it would be permitted to make and receive otherwise prohibited forms of compensation, which have a basis in such agreements, until 1 January 2016. Compensation report: The Impl. Ordinance introduces the concept of a compensation report to be prepared by the BoD (art. 13 Impl. Ordinance), thereby requiring disclosure of compensation, loans and credits to the Executives (very similar to the existing disclosure rule of art. 663b bis CO, which shall be replaced (art. 14 - 16 Impl. Ordinance). The recognised financial reporting principles (art. 958c CO), the accounting provisions regarding the presentation, the currency and the language (art. 958d para. 2 to 4 CO) and the provisions regarding the keeping and retaining of accounting records (art. 958f CO) are correspondingly applicable to the compensation report (art. 13 para. 2 Impl. Ordinance). The statutory auditors shall examine whether the compensation report complies with the law and the Impl. Ordinance and issue a written report on its findings. The compensation report and the audit report must be published (art. 958e OR) and made available to the shareholders at least 20 days prior to the AGM (art. 696 CO, art. 13 para. 2 Impl. Ordinance). Vote on compensation by AGM: The AGM must (i) yearly vote (ii) with binding effect (iii) on the total amounts of the compensation per category of Executives. The articles of association must provide for detailed rules on such votes and may, but need not, govern the procedure in case of a negative vote, in both cases on the basis of the mentioned three mandatory requirements (art. 18 para. 2 Impl. Ordinance). It would thus not be permitted to provide in the articles of association that the last approved compensations shall continue to be valid in case of a negative vote. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 3
  • 5. Overview on selected provisions of the Impl. Ordinance Topic Contents Compensation The articles of association may empower the BoD to dispose of a specific additional compensation amount for the compensation of ExCom members appointed after a prospective vote on the total amount of the compensation, provided the total amount approved in such prospective vote is not sufficient to compensate the new members up to the next vote of the AGM (art. 19 Impl. Ordinance). Any use of such additional compensation amount must be disclosed in the compensation report along with the amounts allocated to each ExCom member, giving name and position of the corresponding member. AGM and BoD AGM must yearly elect the following positions (re-election is possible): • the chairman of the BoD out of the members of the BoD; • the members of the BoD (each member must be elected separately); • the members of the compensation committee to be chosen from the BoD (each member must be elected separately); • The independent representative of the voting rights (must fulfil analogous independence criteria as the company‘s auditors). In case of a vacancy regarding the chairman of the BoD, a member of the Compensation Committee or the independent representative of voting rights, the BoD shall appoint a replacement for the rest of the tenure unless the articles of association contain a differing solution (art. 4 para 4, 7 para. 4 and 8 para. 4 Impl. Ordinance). The AGM must yearly vote on the total compensations (see above). Representation of voting rights by corporate bodies of the company or by depositaries (such as banks) is prohibited (art. 11 Impl. Ordinance). Thus, the only permitted form of institutional representation of voting rights will be the representation by the yearly elected independent representative of voting rights (art. 8 et seq. Impl. Ordinance). © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 4
  • 6. Overview on selected provisions of the Impl. Ordinance Topic Contents AGM and BoD The articles of association may empower the BoD to delegate the management of the company fully or partially to one or several of its members or to other natural persons (art. 6 para. 1 Impl. Ordinance). The asset management can be delegated to legal persons based on a corresponding provision in the articles of association (art. 6 para. 2 Impl. Ordinance). Proxies and instructions The shareholders must be offered the possibility to electronically submit proxies and voting instructions to the independent representative of voting rights (art. 9 para. 1 no. 3 Impl. Ordinance). Moreover, the companies must offer their shareholders the possibility to give general voting instructions for nonnotified motions (art. 9 para. 1 no. 2 Impl. Ordinance). Proxies and instructions may only be submitted for the coming AGM (art. 9 para. 2 Impl. Ordinance). To the extent the independent representative for voting rights has not received voting instructions it must abstain from voting (art. 10 para. 2 Impl. Ordinance). With the legal default quorum of the majority of the votes represented the abstentions have the effect of negative votes. In order to prevent this effect the companies could change the quorum to the majority of the votes cast, which requires an amendment of the articles of association. Articles of association The articles of association must contain provisions on (art. 12 para. 1 Impl. Ordinance): • the number of permitted functions of the Executives as supreme management body in legal entities which (i) are required to be registered in the Swiss commercial register or an analogous foreign register and (ii) are neither controlled by the company nor control the company; • the maximal duration of the agreements underlying the compensation of the members of the ExCom and of the BoD as well as the maximum notice period for indefinite agreements, whereby such maximum duration and maximum notice period may not exceed one year; • the principles of the duties and competencies of the compensation committee; • the detailed rules on the yearly binding AGM votes on the total amounts of the compensation per category of the Executives. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 5
  • 7. Overview on selected provisions of the Impl. Ordinance Topic Contents Articles of association Provisions on the following topics must be governed by the articles of association in order to be valid and binding (art. 12 para. 2 Impl. Ordinance): • the amount of loans, credits and Pensions to Executives; • the principles for performance based compensation (erfolgsabhängige Vergütungen) to Executives; • the principles for the granting of equity securities, option and conversion rights to Executives; • the power to transfer the management; • the specific additional compensation amount (if any) for ExCom members appointed after a prospective GM vote on the total amount of the ExCom compensation; • the procedure in case of a negative vote of the AGM on the total amount of compensation; • Provisions deviating from the Impl. Ordinance regarding the election of the chairman of the BoD, the members of the compensation committee and the independent representative of voting rights in case of a vacancy up to the next AGM; • compensation to Executives for work in companies under direct or indirect control of the company. Pension funds Pension funds within the meaning of the Vested Benefits Act (Freizügigkeitsgesetz; SR) are subject to the obligation to vote with regard to directly owned shares (art. 22 Abs. 1 Impl. Ordinance). Indirect holdings such as investment funds are not covered, except where the fund grants a voting right to the pension fund or where the latter controls the investment fund. The obligation to vote is restricted to announced motions regarding the following agenda items:(i) election of the chairman and the members of the BoD, of the members of the compensation committee and of the representative of the voting rights; vote on amendments to the articles of association in the context of the above mentioned mandatory provisions (art. 12 Impl. Ordinance), and (iii) votes on the total amounts of the compensations (art. 22 para 1 Impl. Ordinance). If it corresponds with the interests of the insured persons, the pension funds may decide to abstain from voting (art. 22 Abs. 3 Impl. Ordinance). The pension funds must moreover at least yearly account for compliance with the voting obligation and disclose in detail their votes where they have voted against the motion of the BoD or abstained from voting (art. 23 Impl. Ordinance). © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 6
  • 8. Overview on selected provisions of the Impl. Ordinance Topic Contents Criminal sanctions Deliberate violations, i.e. violations against the better judgment, by an Executive of the following provisions of the Impl. Ordinance will be punished by imprisonment up to 3 years and a fine (art. 24 para. 1 Impl. Ordinance): − Making or receiving of severance payments, payments in advance and bonuses for the takeover or transfer of businesses or parts thereof within the group pursuant to art. 20 nos. 1 to 3 and 21 no. 1 Impl. Ordinance Deliberate violations, i.e. violations against the better judgment, by a member of the BoD of the following provisions of the Impl. Ordinance will be punished by imprisonment up to 3 years or a fine (art. 24 para. 2 Impl. Ordinance): − − − − − − Delegation of the management partially or fully to a legal person Implementation of a representation of voting rights by corporate bodies of the company or depositaries Preventing AGM from yearly and separately electing the chairman and the members of the BoD, the members of the compensation committee and the independent representative of voting rights Preventing the AGM from voting on the compensation for the Executives as defined by the BoD Preventing the shareholders form electronically submitting proxies and voting instructions to the independent representative of voting rights Preventing that the articles of association contain the provisions (i) regarding the number of permitted functions of the Executives as supreme management body in legal entities which are required to be registered in the commercial register and are neither controlled by the company nor control the company, and (ii) regarding the maximal duration of the agreements underlying the compensation of the members of the ExCom and of the BoD as well as the maximum notice period for indefinite agreements, whereby such maximum duration and maximum notice period may not exceed one year. Violations with conditional intent (Eventualvorsatz) or negligent violations do not constitute a criminal offence. Only the Executives are subject to the criminal sanctions, however, other involved persons may be criminally liable for aiding and abetting. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 7
  • 9. Overview on selected provisions of the Impl. Ordinance Topic Contents Criminal sanctions Members of the supreme body or persons responsible for the management of pension funds will only be sanctioned with fines in case of deliberate violations, i.e. violations against the better judgment, of the applicable provisions of the Impl. Ordinance. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 8
  • 10. Transitory provisions The Impl. Ordinance will enter into force on 1 January 2014 ● Severance payments, payments in advance, as well as bonuses for the takeover or transfer of businesses or parts thereof within the group are prohibited , except where they are based on peexisting (altrechtliche) employment agreements, which must only be adapted to the Impl. Ordinance until January 1, 2016 ● Representation of voting rights by corporate bodies of company and depositaries (such as banks) is prohibited ● Delegation of management only to natural To be observed for the first AGM after persons 1 January 2014 ● Criminal sanctions • BoD must appoint independent representative of voting rights • AGM must elect chairman and members of BoD as well as members of compensation committee and the independent representative of voting rights (for the next AGM) 1 January 2014 Applicable as of 1 January 2015 Applicable as of 1 January 2016 ● The pension funds must adapt their regulations and organisation to the new law ● Duties of pension funds to vote and to disclose voting ● Employment agreements of members of executive board muss be adapted to the new law To be observed for second AGM after 1 January 2014 • • • • BoD must issue the compensation report and have it audited The articles of association and internal regulations must be adapted to the new law. The provisions regarding the AGM vote on the total amounts of the compensations for the Executives apply electronic submitting of proxies and voting instructions to independent representative of voting rights must be possible 1 January 2015 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 1 January 2016 9
  • 11. Agenda of the board of directors The Board of Directors of a Swiss Corporation listed in Switzerland or abroad has to: Short-term need for action  appoint an independent representative of voting rights for the next AGM;  make sure that the provisions of the Impl. Ordinance containing criminal sanctions are abided to (no prohibited forms of compensation; no representation of voting rights by corporate bodies of company and depositaries, no delegation of management to legal persons, etc.);  put motions on the agenda of the next AGM for (i) separate election of all members of BoD, including chairman, for tenure of one year, (ii) for separate election of all members of compensation committee for tenure of one year (iii) for election of independent representative of voting rights, for tenure of one year, (iv) possibly for the detailed rules on the yearly binding AGM votes on the total compensations and (v) possibly for the amendment of the legal default quorum at the AGM from majority of votes represented to majority of votes cast in order to prevent that abstentions of the independent representative of voting rights have the same effect as negative votes; Intermediate-term need for action  implement the infrastructure for the electronic submission of proxies and instructions by the shareholders to the independent representative of voting rights (at the latest until the second AGM after January 1, 2014);  produce the compensation report for the second AGM after January 1, 2014, and have such compensation report audited by the Auditors;  set up the detailed rules on the yearly binding AGM votes on the total compensations for the second AGM in case articles will not be amended on next AGM;  set up the principles of the duties and competencies of the compensation committee (if not yet existing) until the implementation of the corresponding new provision in the articles of association;  put motions on the agenda of the second AGM (to the extent not yet done at next AGM) for the supplementing and adjusting of the articles of association as required by the Impl. Ordinance, in particular: (i) regarding Art. 12 of Impl. Ordinance; (ii) regarding the tenure of the BoD (if necessary), (iii) regarding reference to the publication of the compensation report, (iv) regarding the non-delegable duties of the AGM, (v) provisions governing proxies;  review existing compensation plans and if necessary adapt them to Impl. Ordinance before second AGM after January 1, 2014;  review existing employment agreements and, if necessary, adapt them to Impl. Ordinance before January 1, 2016. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 10
  • 12. Contacts Jörg Kilchmann Therese Amstutz Partner KPMG Attorney-at-Law, LL.M. Director KPMG Attorney-at-Law, LL.M. T: +41 (0)58 249 35 73 E: jkilchmann@kpmg.com T: +41 (0)58 249 54 38 E: tamstutz@kpmg.com © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 11
  • 13. © 2013 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.