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Compensation Report 2006Excerpt from the “Handbook 2006 / 2007” – Corporate Governance reportingIntroductionUnder the SWX Swiss Exchange “Directive on Information relating to Corporate Governance”, listed companies are required to disclose information on compensation for the members of the Board of Directors and Senior Management, their share and option holdings as well as loans granted to them. Two years ago, the UBS Board of Directors and its Compensation Committee decided to publish a separate, significantly enhanced report, providing shareholders and the public at large with a compre-hensive picture of UBS’s overall compensation philosophy and its procedures and processes in place. The report explains who has authority for shaping the overall compensation systems and how executive compensation decisions are arrived at.This year’s report has not only been visibly enhanced but completely redesigned to offer both improvements in its structure and readability as well as to provide additional information with regard to the shareholder friendly aspects of our compensation philosophy, the selection criteria for our peers and a number of ratios, further increasing transparency and comparability.Senior Executives in this report include the three executive members of the Board of Directors (Marcel Ospel, Chairman, Stephan Haeringer and Marco Suter, Vice Chairmen), and the members of the Group Executive Board (Peter Wuffli, CEO, John Fraser, Huw Jenkins, ...
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Compensation Report 2006
Excerpt from the Handbook 2006
/ 2007 Corporate Governance reporting
Introduction
Under the SWX Swiss Exchange Directive on Information relating to Corporate Governance, listed companies are required to disclose information on compensation for the members of the Board of Directors and Senior Management, their share and option holdings as well as loans granted to them.
Two years ago, the UBS Board of Directors and its Compensation Committee decided to publish a separate, significantly enhanced report, providing shareholders and the public at large with a compre-hensive picture of UBSs overall compensation philosophy and its procedures and processes in place. The report explains who has authority for shaping the overall compensation systems and how executive compensation decisions are arrived at.
This years report has not only been visibly enhanced but completely redesigned to offer both improvements in its structure and readability as well as to provide additional information with regard to the shareholder friendly aspects of our compensation philosophy, the selection criteria for our peers and a number of ratios, further increasing transparency and comparability.
Senior Executives in this report include the three executive members of the Board of Directors (Marcel Ospel, Chairman, Stephan Haeringer and Marco Suter, Vice Chairmen), and the members of the Group Executive Board (Peter Wuffli, CEO, John Fraser, Huw Jenkins, Peter Kurer, Marcel Rohner, Clive Standish, Walter Stuerzinger, Mark Sutton, Rory Tapner and Raoul Weil). Non-executive members of the Board of Directors included in this report are Ernesto Bertarelli, Sir Peter Davis, Gabrielle Kaufmann-Kohler, Rolf A. Meyer, Helmut Panke, Peter Spuhler, Peter Voser, Lawrence A. Weinbach and Joerg Wolle.
Board of Directors Chairman
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Compensation Report 2006
Compensation, shareholdings and loans
Our competitive strength depends on our ability to attract, retain and motivate the most talented people in financial services. The policies established by the Board of Directors Compensation Committee create incentives to promote an entrepreneurial, performance-driven culture and to support the firm’s integrated business strategy. By linking the compensation of senior executives to sustainable shareholder returns while adhering to our ethical values, the Compensation Committee aims to establish a framework for long-term value creation.
Compensation Committee Additionally for executive members of the Board of Di-rectors and members of the Group Executive Board (senior The Compensation Committee is made up of three non-ex-executives) – it has responsibilities in five key areas: ecutive, independent members of the Board. As of 1 De- 1. Reviewing and approving the design of the compensation cember 2006, these were Rolf A. Meyer (chair), Sir Peter Da - system, including compensation programs and plans; vis and Peter Spuhler. 2. Determining the relationship between pay and perfor -mance; Governance, authorities and responsibilities . Approving salaries and incentive awards for senior execu -tives; UBS has long been committed to the highest standards of 4. Reviewing and approving individual employment con -corporate governance. The approval of senior executive tracts; and compensation follows a rigorous process designed to ensure 5. Reviewing and approving the terms and conditions for that no one participates in any decision affecting his or her GEB members relinquishing their positions. own compensation. Authority for compensation-related decisions is governed The Compensation Committee is responsible for review- by the appendix to UBSs Organization Regulations and by ing the Group Compensation Policy for submission to the the charter of the Compensation Committee. The structure Board. is as follows:
Compensation authorities Compensation recommendations Recipients developed by Approved by Communicated by Chairman of the Board Chairman of the Compensation Committee Compensation Committee Chairman of the Compensation Committee Executive BoD members Chairman of the Board Compensation Committee Chairman of the Board Group CEO Chairman of the Board Compensation Committee Chairman of the Board Members of the GEB Chairman of the Board and Group CEO Compensation Committee Group CEO Non-executive BsoysDt emme manbderfse es) 1 Executive members of the BoD Executive b rs of the BoD Chairman of the Board (Remuneration mem e 1 The decision process for the remuneration of non-executive BoD members is fully independent and is not driven by company results.. >> The full Charter of the Compensation Committee and the appendix to UBS’s Organization Regulations containing the authorities for compensation related decisions, are available on the firm’s website www.ubs.com/corporate-governance.
Compensation Report 2006
Activities It rewards the achievement of personal and business ob-jectives that balance individual performance and long-During 2006, the Compensation Committee carried out: term business growth; A review of best practice in compensation governance, A minimum of half of the annual incentive compensation design, pay mix and disclosure. This combined publicly-awarded to senior executives takes the form of UBS shares available data on key competitors with information pro -that vest or become unrestricted over five years, ensuring vided by compensation consultants; focus on long-term decisions and actions, and aiding re- A review of pay and performance to ensure that senior tention of executive talent. executive compensation levels were appropriate com- In addition to this significant mandatory deferral of com -pared with counterparts of competitors; pensation, all senior executives are required to accumu- A review of the compensation plan rules for senior execu -late and hold five times their cash compensation in UBS tives to ensure they clearly reflected shareholders’ inter -shares after five years in their position; ests and provided appropriate incentives for long-term The strike price of stock options is set at 110% of the value creation. average high and low sale price of UBS shares on the The Compensation Committee did not appoint any external grant date resulting in a 10% performance hurdle; sig -compensation consultants during 2006. Rather, it relied on de-nificant share price growth is thus required before the ex -tailed background documentation – internal and external com - ercise price becomes meaningful; pensation surveys and other intelligence provided by internal In certain circumstances, share and stock option plans are human resources specialists as well as on data from Group forfeited at termination or thereafter; Controlling and Accounting. The Committee Chairman also No additional severance payments are offered in instanc-made use of information obtained through his participation in es of termination, although obligations earned up to and various international seminars for compensation professionals. including the notice period are honoured in line with the contractual arrangements; and Senior executive compensation policy All senior executives are offered the opportunity to invest voluntarily in additional UBS shares from their cash com-Principles pensation. Two related principles govern our senior executive compen- All these mechanisms help focus senior leadership on the sation programs (and, indeed, the compensation of all UBS long-term interests of UBS shareholders and minimize the employees): creation of shareholder value and pay for per - cost of any future terminations. formance. Specifically: All elements of compensation are managed in a globally Shareholder-friendly compensation structure integrated fashion, with clear recognit consistent and ion Shareholder value creation Mandatory deferral of 50% of total incentive of pay for performance; into UBS shares Compensation levels and practices are benchmarked Share ownership requirements five times against competitors; and cash compensation Significant exposure to UBS shares serves to align senior Bonus only gets increased after results increased executive and shareholder interests. by at least 5% Business performance Total compensation based on achievement of Annual total compensation is competitively positioned demanding business and personal objectives Five year vesting period focuses on long-term and we place a strong emphasis on the variable components decisions and executive retention o pfe rcfoormmpaenncsea tiwoinll, bwei trhe twhaer duendd ewristtha nsduipnegri tohr act oomnlpye snusapteiroino.r Share price performance Performance hurdle of 10% for stock options Such incentives provide the motivation to excel in the entre-Cost of termination No severance payments preneurial, performance-oriented culture that is required to Vesting conditions with forfeiture risk execute our integrated business strategy. In addition, the No special pension scheme contributions Co ensation Committee verifies whether the senior exec -No additional payments for change of utivme pfulfilled their objectives, in particular withegard to the control instances r importance of maintaining and spreading UBSs ethical val-No lifelong perquisites ues throughout the firm. UBS strives for direct shareholder alignment. We believe that strin-gent share ownership requirements are more meaningful than the Shareholder Alignment complex performance hurdles of many equity-based compensation The Compensation Committee structures senior executive programs since a significant part of individual wealth is directly “at risk” in relation to the long-term performance of UBS shares.” e c s o ts m a p n e d n s l a o ti n o g n -t e t r o m e v n a s l u u r e e c a r l e ig at n io m n e . n S t p w ec it ifi h c s al h ly areholder inter-Peter A. Wuffli, CEO, 2006 :
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Pay for performance Senior executive compensation plans UBS is committed to providing superior compensation only in return for superior performance, and continually strives to Senior Executive Equity Ownership Plan (SEEOP) improve the benchmarks and processes that support in - Under SEEOP, senior executives typically receive a minimum of formed compensation decision-making. 50% of their annual incentive award in the form of UBS shares. At the beginning of the year, each UBS senior executive (This amount is subject to the discretion of the Compensation agrees individual objectives and Key Performance Indicators Committee.) Unless prohibited by local law, senior executives (KPIs). Individual objectives focus on clients, economics, receive actual UBS shares with the same rights as ordinary technical expertise, leadership, cross-business co-operation, shareholders. Shares are denominated either in CHF or USD strategic impact and personal contribution. KPIs vary by busi- depending on the currency of the executives incentive. ness and by individual; they typically include such measures Shares normally vest in equal portions over a period of as revenue growth, net profit, return on equity, return on as -five years. For tax reasons, shares of Swiss-based senior ex -sets, cost/income ratio, net new money, progress on strate- ecutives are additionally restricted from sale for the duration gic initiatives and adherence to UBS values. of the five-year period. Financial performance targets are clearly defined at UBS Shares that have not vested at the time of termination are Group and Business Group levels. subject to forfeiture under certain circumstances; these in -As the year draws to a close, a senior executives perfor-clude voluntary termination to join a competitor, termination mance against each objective and KPI is rigorously evaluat - for cause, or in connection with activities detrimental to the ed, not only by his or her immediate superior but also by interests of UBS. peers and subordinates. This 60-degree assessment is both qualitative and quantitative – comprising financial and op -Senior Executive Stock Option Plan (SESOP) erational results for the year, as well as indicators of future Discretionary stock option awards are a long-term incentive, performance. Performance against key competitors and per - based on the individual past performance of each senior ex-formance trends over time are likewise reviewed, to the ex -ecutive, their contribution to the overall success of the firm tent data is available. and their future potential. To the extent that a senior executives business and indi-All senior executives may be granted discretionary stock vidual performance exceeds or falls short of his or her options under SESOP and are eligible to receive two match-agreed expectations, total compensation mirrors the out-ing stock options for each share they voluntarily purchase come. In consequence, compensation levels can (and often from cash compensation granted under the additional SEEOP do) vary widely from year to year. program. The strike price for senior executive stock options is set at Elements of compensation 10% above the UBS share price on the grant date. This per -Total compensation for senior executives comprises four ele- formance hurdle creates a strong incentive for senior execu-ments: base salary, incentive awards, stock option awards tives to build sustainable shareholder value over the longer and benefits. term. Options normally vest after three years and remain exer-cisable for seven further years. Any unvested options will generally be forfeited should the executive leave voluntarily, Relative weight of fixed and variable elements join a competitor, be terminated for cause or act against the of 2006 compensation for acting executive BoD firm’s interests. members and members of the GEB in % As of 31.12.06 Pension & benefits (fixed) 16 Salaries (fixed) 10 Stock options (variable) 38 Performance incentive – cash (variable) Performance incentive – equity (variable)
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Retiring senior executives receive their financial incentive awards in cash only.
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Compensation Report 2006
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Base salaries Base salary levels are established in a manner consistent with the role of each senior executive. Base salary adjustments are limited to significant changes in job responsibility. Due to the variability of annual incentive awards, the ratio of base salary – a fixed amount – to total compensation can vary significantly year to year. In 2006, base salaries for senior executives constituted, on average, some 6.5% of total compensation.
Discretionary stock option awards Stock options help align executive performance with long-term shareholder interests, since they deliver value only to the degree the share price appreciates more than 10% after the grant. At UBS, discretionary stock option awards reward the individual’s contribution to the overall success of the firm. They do not form part of the annual incentive award but are a reflection of the success of our integrated business model. The Board of Directors approves an annual option quantity for a three-year period. Within this limit, the Chairman’s Office annually allocates option quantities to the Business Groups and Corporate Center.
Annual incentive awards Each annual incentive award is assessed according to the individuals achievement of his or her business goals and personal objectives. All senior executives are considered for an annual incentive award provided performance targets are achieved, but with a few rare exceptions (e.g., competitive practice or business strategy), annual incentives are completely discretionary and vary considerably, both from individual to individual and from year to year. Exceptional individual performance is reflected in the annual incentive award rather than in an adjustment to base salary. The maximum annual incentive award is limited to double the senior executives target. 50% of the annual incentive award is granted in the form of mandatory restricted or deferred UBS shares; senior executives also have the opportunity to invest a further portion of their annual incen-tive in UBS shares, which attract a “two for one” stock option match. In certain jurisdictions, senior executives may also be offered the opportunity to invest a portion of their cash incentive in vehicles not related to UBS shares, provided such investment does not jeopardize their individual shareholding requirement.
Benefits UBS provides benefits to help attract and retain the best employees in each local market. Changes, terminations and the introduction of new benefits are governed by the procedures contained in the firm’s Organization Regulations. Benefits are a supplemental element of total compensation and vary substantially from location to location. In Switzerland, for example, senior executives participate in a general pension plan made up of three elements: (1) a basic component operated on the defined benefit principle (defined contribution principle as of 1.1.2007); (2) a savings plan to bridge the income gap between UBS retirement age and the age defined for the start of social security payments; and (3) a defined contribution bonus plan. No special pension schemes are offered to senior executives. Outside Switzerland, senior executives participate in appropriately designed local pension plans. In the US, the firm offers two plans – one operating on a cash-balance basis, the other on defined contributions. US senior executives may also participate in a 401K defined contribution plan open to all employees. In the UK, senior executives participate in a pension plan operated on a defined contribution basis. (Note 31 to the UBS Group financial statements details the various retirement benefit plans established in Switzerland and in major foreign markets.)
Senior executive share ownership policy years average cash component of total compensation (base With a view to aligning the interests of its management with salary plus cash portion of incentive award). Holdings in UBS those of its shareholders, UBS strongly encourages signifi -shares to be accumulated range from CHF 19 million to CHF cant levels of stock ownership on the part of its senior ex - 71 million per senior executive and thus constitute a sub-ecutives. stantial part of their personal wealth. Progress reports are provided to each senior executive annually, and executives As previously noted, a substantial part of the annual in-will be expected to make steady progress towards their tar -centive award for senior executives is delivered in the gets. Missed targets may lead the Compensation Committee form of mandatory restricted or deferred UBS shares. to deny the grant of discretionary stock option awards. Senior executives, moreover, who voluntarily elect to take In view of the SEEOP program, the employee Equity an even greater proportion of their annual incentive Plus program is not offered to senior executives. award in the form of restricted or deferred UBS shares receive two additional UBS stock options for each addi -Contracts of employment and severance payments tional share. The options are granted under SESOP in ac- The Compensation Committee regularly reviews the individ-cordance with the conditions described before. ual employment contracts of senior executives. These con-tracts provide for a general notice period of twelve months, Five years after appointment, senior executives are re - during which time the senior executive is entitled to receive quired to accumulate and then hold UBS shares with an salary and a pro rata incentive, unless he has been termi-aggregate value of five times the amount of the last three nated for cause. Shares held by executive members of the Board and members of the Group Executive Board 1 Shares held as of 31 December 2006 7,774,048 Of which Vested vesting 2007 vesting 2008 vesting 2009 vesting 2010 vesting 2011 3,760,905 1,385,229 989,902 782,131 570,492 285,389 1 Includes parties closely linked to them. No individual BoD or GEB member holds 1% or more of all shares issued. Options held by executive members of the Board and members of the GEB, as of 31 December 2006 Number of options Year of grant Vesting date Expiry date Subscription ratio Strike price 585,192 2001 20.02.2004 20.02.2009 1:1 CHF 50.00 648,886 2002 20.02.2005 31.01.2012 1:1 CHF 38.88 376,144 2002 31.01.2005 31.01.2012 1:1 USD 22.63 680,000 2002 28.06.2005 28.06.2012 1:1 CHF 40.38 120,000 2002 28.06.2005 28.12.2012 1:1 CHF 40.38 360,000 2003 31.01.2006 31.01.2013 1:1 USD 24.00 690,000 2003 31.01.2006 31.07.2013 1:1 CHF 32.50 1,144,564 2004 28.02.2007 28.02.2014 1:1 CHF 51.88 717,072 2004 28.02.2007 28.02.2014 1:1 USD 40.63 2,493,308 2005 01.03.2008 28.02.2015 1:1 CHF 55.75 560,772 2005 01.03.2008 28.02.2015 1:1 USD 47.75 2,510,860 2006 01.03.2009 28.02.2016 1:1 CHF 77.33 Parties closely linked to the executive members of the Board and members of the GEB do not hold any options on UBS shares. 7
Compensation Report 2006
The Compensation Committee has drawn up special em- their core business to that of UBS, as well as for compara-ployment agreements for the Chairman of the Board and ble size, geographic distribution, business strategy and per-the Executive Vice Chairmen. These agreements reflect the formance. Typically, these are also the companies from fact that these officers are appointed by UBS shareholders to which UBS is most likely to hire and to which it is most a three-year term and may be terminated only by means of likely to lose senior employees. Competitive compensation a shareholders vote. at a senior level is therefore a vital element in preventing Neither the GEB employment contracts nor the contracts the loss of leadership talent and experience from UBS to for executive members of the BoD provide for any additional its competitors. Generally nine key competitors are consid -severance payment in case of termination apart from the ered to represent the most relevant labor market for senior normal salary and bonus entitlements. All payments are in-executive compensation: Bear Stearns, Citigroup, Credit cluded in the numbers reported under the compensation for Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, members of the Board and the GEB. Lehman Brothers, Merrill Lynch and Morgan Stanley. In the view of the Compensation Committee, UBSs compensa-Key elements for decision-making process within the tion systems compare favorably with these nine key com -Compensation Committee petitors. For certain positions and for purposes of other analysis (including the best practice review), additional Key competitors competitors may be taken into account (such as the large Compensation and benefit levels are primarily result-driven Swiss private banks, private equity firms and hedge funds, and further benchmarked against appropriate key compet - which are increasingly becoming attractive alternatives for itors. These companies are selected for the similarity of our employees).
Comparison by business activity (key peers) Key competitors Others UBS BS Citi CS DB GS JPM LB ML MS HSBC RBS ING BofA Global Wealth Management & Business Banking WM CH WM Int. WM US BB/Retail CH Investment Bank Equities Fixed Income Foreign Exchange Corporate Finance Global Asset Management Core Alternatives
Actual process and decisions taken financial targets) as well as against similar metrics of key com -The Compensation Committee makes decisions on individu - petitors. These measurements and assessments resulted in a al senior executive compensation based on: (1) the individual fixed theoretical incentive award for each senior executive. performance and personal contributions of each member; Finally, this theoretical incentive award was measured (2) market data of competitors; (3) actual UBS compensation against various additional factors: personal performance in prior periods; and (4) an assessment submitted by the based on individually defined criteria, future potential, leader -Chairman of the Board. It also takes into consideration the ship qualities and contributions to the overall success of UBS. proposals made by the Group CEO when making compensa - This qualitative assessment led to discretionary increases or tion decisions for GEB members. decreases from the theoretical incentive by up to +/–25%. Long-term incentive option awards for 2006 were grant-Determination of 2006 incentive targets ed in February of the same year, based on the individual past In February 2006, the Compensation Committee defined performance of each senior executive, their contribution to personal incentive targets for each senior executive. Begin -the overall success of the firm and their future potential. ning with the individual incentive award for 2005, the Com-mittee then applied the following steps: Decision-making factors for 2006 senior i. a fixed % (increase or decrease) representing the differ -executive compensation ence between the 2006 financial forecast, and the 2005 ac -At the Group level, 2006 financial results exceeded internal tual results. The 2005 results used were net profit attribut - targets and outperformed those of many competitors. UBS able to UBS shareholders at the UBS Group level, and, where achieved a return on equity from continuing operations of applicable, profit before tax adjusted for goodwill funding 26.5%. This return exceeded the internal target of >20% as and impairment charges at the Business Group level. well as that of all but one of the firm’s peers. The 20% increase ii. a fixed reduction averaging 5% of the amount resulting in diluted earnings per share from continuing operations is from step i, being a productivity gain to shareholders. This means well in line with UBSs target of double-digit average annual that an overall increase of 5% in 2006 business performance growth. Total shareholder returns for the year under review would be required relative to 2005 in order to achieve the same were 21.5%. Cumulatively over a three-year period, they were level of compensation in both years. If 2006 business results had 90.3%, and 104.4% over a five-year period. The UBS share remained at the same level as 2005, the target incentive awards price, moreover, has outperformed the DJ Stoxx Banks Europe to senior executives would have been on average 5% lower, Index over the recent three-year period by 15.4%. before the application of the final discretionary adjustment. While UBSs share price appreciation and total sharehold-iii. An individual discretionary increase or decrease, taking er returns – achieved over the most recent three- and five-into account future potential, any change in role, and com-year periods – are significantly better than the average per -petitive positioning. formance of the peer group, it underperformed the average of its peers over the 2006 period. At the Business Group Determination of 2006 actual incentives level, financial performance improved in all the firm’s core In early February 2007, actual 2006 results were assessed businesses, with a commensurate rise in both market share against the 2006 forecast (UBSs Group and Business Group and competitiveness. Decision-making process for 2006 senior executive compensation February 2006: Definition 2005 actual results compared with 2006 financial forecast of target incentive award +/– % Difference between 2005 actual results and 2006 forecast – 5% Productivity gain (for shareholders) +/– % Due to individual potential, change in role and market = Individual target for 2006 February 2007: Doeffi a n c i t ti u o a n l 2006 actual results compared with 2006 forecast and competitor results incentive award
+/– % Theoretical bonus for senior executives +/–25% Discretionary performance and market adjustment = Individual bonus for 2006
Example (illustrative) Actual bonus 2005 10.0 –7% Delta 2006 forecast vs. 2005 actual – 0.7 – 5% Productivity gain – 0.5 +3% Individual role adjustment + 0.3 = Target 2006 = 9.1
+8% Diff. 2006 actual vs. 2006 forecast + 0.8 2% Personal KPI adjustment – 0.2 – = Actual bonus 2006 = 9.7
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Compensation Report 2006 In determining the total compensation of senior execu-buybacks); (2) that this increased profit was derived primarily tives, the Compensation Committee took into account three from revenue growth (not simply cost reduction); and () key factors behind the firm’s 2006 performance: (1) that EPS that the firm is successfully executing major strategic invest -growth was strongly driven by profit (as opposed to share ment initiatives. 3 and 5 year total shareholder return (TSR); UBS vs. key competitors in % 1 Bear Stearns 3-year TSR UBS 5-year TSR Lehman Brothers Goldman Sachs Deutsche Bank Merrill Lynch Credit Suisse JP Morgan Morgan Stanley Citigroup 0 20 40 60 80 100 120 140 160 180 200 1 Calculation based on US dollar numbers. UBS share price chart compared to SMI/DJ and peer firms in % 1 January 2004 – 31 December 2006 Source: Datastream 190 190 160 160 130 130 100 100 70 70 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 UBS share price DJI SMI UBS share price Average of UBS peers Note: For current share price refer to: www.ubs.com/quotes Actual 2006 compensation for executive members of the stock options based on fair market value. The corresponding Board of Directors and the Group Executive Board ratios in 2005 were 1.55% and 1.71%. Total compensation for the financial year 2006 (base salary, Changes in the composition of the two corporate bodies incentive awards, stock options, employer’s contributions to as well as an ongoing redefinition of executive roles – clear -– retirement benefit plans, benefits in kind and fringe benefits) ly impact the disclosed total compensation number and for the three executive members of the Board of Directors, should be taken into consideration in any year-on-year com -the ten members of the Group Executive Board in charge as parison. While no changes took place in the two bodies dur -of 31 December 2006, was CHF 246,832,740. The increase ing all of 2006, John Costas retired from the GEB at the end of 10.9% over last year’s compensation figures compares of 2005 and Rory Tapner joined the GEB as of 1 January favorably with the increase in Group profits of 18% (and 2006 as Chairman and CEO of Asia Pacific. Mark Sutton re -19% for the financial businesses). Total incentive awards for tired as of 1 January 2007. Due to obligations following a 2006 granted to senior executives represented 1.85% of the special contract in light of the reorganization in the US, a overall incentive awards distributed to UBS employees as a GEB member is entitled to receive USD 11 million for 2007 whole. The ratio of total compensation of all senior execu- payable in 200 and USD 5.5 million for 200 payable in tives to UBS’s net profit before tax in 2006 was 1.51% ex -2009. The full amount for the three-year contract has been cluding stock options and amounted to 1.68% including accrued against the 2005 income statement. 10
Compensation for acting executive BoD members and members of the GEB 1 Compensation details and additional information For the year ended CHF, except where indicated 31.12.06 31.12.05 31.12.04 Base salaries and other cash payments 16,199,045 15,592,026 14,767,068 Incentive awards cash 107,253,962 89,672,195 69,745,013 Employer‘s contributions to retirement benefit plans 873,239 1,064,640 1,050,322 Benefits in kind, fringe benefits (at market value) 1,809,429 2,582,112 1,607,166 Total (requested by SWX) 126,135,675 108,910,973 87,169,569 Incentive awards – UBS shares (fair value) 95,340,402 92,877,243 79,723,391 Restricted UBS options (fair value) 2 25,356,663 20,768,251 23,736,337 Total (including shares and options) 246,832,740 222,556,467 190,629,297 Total number of shares granted 1,258,370 1,311,492 1,584,510 Total number of options awarded 2 2,439,776 2,877,526 2,188,104 of which CHF options 2,439,776 1,937,526 947,332 of which USD options 0 940,000 1,240,772 1 Related parties of senior executives were not granted any shares or options. 2 Includes options granted to match voluntary increases of the share portion of the incentive award. Explanations: tions granted in February 2005 and CHF 9.54 for options Number and distribution of senior executives: granted to match higher share elections in February 2007. 2004: three executive BoD, seven GEB members in office No US dollar options have been issued since February as of 1 December and two who stepped down during 2005. 2004 fair values per option at grant: CHF 11.95 / USD the year. 10.26. 2005: three executive BoD, and ten GEB members in of - Retirement plan benefits: In Switzerland, UBS senior ex -fice as of 31 December and one executive BoD who re -ecutives participate in the firm’s general pension plans. tired during the year. These comprise: (1) a basic component operated on the 2006: three executive BoD, and ten GEB members in of -defined benefit principle (defined contribution principle fice as of 31 December. as of 1.1.2007); (2) a savings plan to bridge the income Benefits in kind: car leasing, company car allowance, staff gap between UBS retirement age and the age defined for discount on banking products and services, health and the start of social security payments; and (3) a defined welfare benefits, general expense allowances. contribution principle bonus plan. In 2006, the cap com- Shares for 2006 are valued at CHF 75.85 per share (aver - pensation amount included in these plans (for all employ-age price of UBS shares at virt-x over the last ten trading ees) was set at CHF 774,000. This translates into a maxi -days of February 2007), and USD 61.49 per share (aver -mum annual pension of CHF 313,708 after retirement age price of UBS shares at the NYSE over the last ten trad- plus a one-off payout of accumulated capital from the ing days of February 2007). 2005 values per share: CHF savings plan, in a maximum amount of CHF 297,617. In 70.75 / USD 53.93. 2004 values per share: CHF 50.90 / USD the US there are two different plans, one operating on a 4.7. cash balance basis, which entitles the participant to re- Options on UBS shares were granted at a strike price of ceive a contribution based on compensation limited to CHF 77.33. This represents ten percent above the average USD 250,000. The other plan is a defined contribution high and low price at the virt-x on the last trading day of plan with compensation included up to a limit of USD February 2006. Options vest three years after grant and 220,000. US senior executives may also participate in the expire ten years after the date of grant. UBS 401K defined contribution plan open to all employ - Fair values per option at grant: CHF 10.40 for options ees. In the UK, the pension plan for senior executives is granted in February 2006; CHF 6.23 / USD 6.73 for op - limited to an earnings cap of GBP 100,000. 11
