UBS to change the way it pays senior managers

UBS AG said Monday that starting next year it will stop making bonus payments to its chairman and that other top executives will be penalized if the bank performs badly to discourage irresponsible risk-taking.

Switzerland's largest bank has been under pressure to change its compensation model after it was revealed that senior officials were paid bonuses worth millions of francs (dollars) annually even though their management drove UBS to seek a $60 billion government bailout last month.

UBS chairman Peter Kurer will receive a fixed salary from 2009, the bank said.

Kurer, the most powerful figure at UBS, has already said he will forgo any bonus for 2007 and 2008 until the bank has recovered from a disastrous year that saw it lose 45 billion francs ($40 billion) due to bad investments.

The bank will also introduce what it calls a "bonus-malus" system for its other 12 board members that will see their bonus held back for a certain period to discourage risky short-term investments.

UBS said it would apply this system to other senior managers in charge of high-risk parts of its business.

"Should UBS achieve a loss in a subsequent year, no bonus will be awarded, and the cash balance will be reduced by a malus" - effectively the opposite of a bonus - the bank said.

Earlier this month, former CEO Peter Wuffli said he had turned down 12 million francs ($10 million) due to him since leaving UBS last year.

Other former top managers, including former chairman Marcel Ospel, have been urged to give back bonuses and other payments credited to them at a time when the bank was investing heavily in the U.S. subprime mortgage market, which collapsed in July 2007.

"A potential claw-back of paid bonuses for the former members of the Board as well as former top executives is being assessed on legal grounds", UBS added in its statement Monday.

UBS will hold a special meeting Nov. 27 to inform shareholders about the changes to its compensation system and allow them to vote on measures related to the government bailout, which has allowed the bank to dispose of most of its so-called "toxic assets" and draw a line under a disastrous year for one of Europe's biggest financial institutions.

Shareholder activist group Ethos welcomed the proposed changes, but lamented the absence of an upper limit on the amount of bonuses a manager can earn.

UBS shares reached a historic low of 13.74 francs ($11.51) on the Zurich exchange Monday, down 5.2 percent from Friday's close.