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UBS Funds' Trustees Vote Selves Big Raises

Expecting a raise next year? Don't be surprised if it's not quite as generous as the hefty raises awaiting the independent trustees who preside over the UBS Funds complex.

The 33 UBS Funds of New York are managed by either UBS Global Asset Management or UBS Financial Services, two investment management subsidiaries of UBS AG, headquartered in Zurich and Basel, Switzerland. The UBS Funds dropped their co-branded "PaineWebber" name in 2003.

In a Nov. 22 proxy filing, the UBS Funds' board disclosed that its independent trustees will increase their annual retainer fees a hefty 36% beginning Jan. 1, from $70,000 to $95,000 a year. A review of UBS Funds' past publicly filed fund documents reveals that the independent fund trustees' annual retainer has spiked 90% since 2003 (see chart).

What's more, the UBS Funds' board chairman and the chairmen of two board committees will also get pay raises. The premium for serving as the overall chairman of the UBS Funds' board will soar from $30,000 to $50,000, a more than 66% increase, while the bonus for serving as the chairman of the board's nominating/corporate governance committee jumps a similar percentage, from $15,000 to $25,000. Compensation for the chairman of the board's audit committee will increase a more modest 40%, from $25,000 to $35,000. These premiums for serving as chairmen are in addition to the annual retainer fee.

The only caveat is that if an individual trustee assumes more than one chairmanship role for the board. In that case, only the higher premium fee will be paid.

A fund trustee's annual retainer fee is equivalent to an annual base salary, on top of which additional fees are paid for meetings, committee service and other service fees. Under law, independent mutual fund board trustees collectively set their own levels of compensation.

While the UBS board chairman will see a significant boost in pay in 2006, the payment of any premium to its chair is a relatively new phenomenon. It is only since 2004 that the UBS board has sported an independent chairman, and only since 2005 that the board chairman was granted any extra compensation, according to fund documents. Prior to 2004, Brian Storms, then the CEO of UBS Global Asset Management Americas, had served as the affiliated chairman of the board, for which no compensation is typically paid.

What will not increase for UBS board trustees in 2006 are the usual meeting fees they earn. For independent trustees, that's $13,000 for in-person appearances and $2,000 for attendance by phone. But if a trustee cannot attend a meeting due to illness, they'll still get the full $13,000.

However, beginning in 2006, trustees will get an extra $2,000 for each special in-person meeting they attend that is not a joint meeting of the board. This new meeting fee appears to be in line with the Securities and Exchange Commission's new mandate requiring independent directors to meet at least once quarterly in a separate session at which no directors who are interested persons of the fund are present.

"The fund board members set their own compensation," said Peter Casey, a UBS spokesman. "It has been two years since the board members last considered the level of their compensation. The board members considered the results of a recent survey in adjusting their compensation."

The UBS board members' pay increase is not unexpected, given the additional responsibilities and work fund board members, especially board chairmen, have been asked to take on over the past several years, industry experts said.

"We are seeing big, big, big pay increases," said C. Meyrick Payne, a principal of Management Practice of Stamford, Conn. "I'm surprised it's not more," Payne said of the UBS board's pay raise.

One issue is that fund groups are finding they have to pay up in order to attract high-caliber board members "who are prepared to accept the responsibility and time commitment," Payne added. "If you pay peanuts, you get monkeys," he quipped.

Right now, there's no director who can invest less than 180 hours a year handling board tasks, he noted. Over the last few years, not only has the implementation of Sarbanes-Oxley legislation increased fund boards' workload, but new regulatory requirements, including the hiring of a chief compliance officer and other post-scandal related issues, are increasingly on the agenda, as well. Right now, two hot-button issues are distribution and best execution, Payne said. Both of these are complex areas about which trustees are conscientiously focusing, he added.

Setting Their Own Fees

"Boards are required to examine reasonable benchmarks to determine what their compensation should be," said Jeff Keil, principal of Keil Fiduciary Strategies in Littleton, Colo. Although increases may seem large, "there's quite a bit of value there." he added. But despite seemingly high trustees fees, the per-share cost to mutual fund investors is nominal, Keil added. "In legal terms, it's considered de minimis-only fractions of a basis point."

The disclosure of the UBS board's new compensation comes as part and parcel of a proxy asking fund shareholders to approve the nomination of three new independent board members who the board formally nominated in July. Although UBS is expanding its board to eight trustees, seven of whom are independent, the board will be whittled down to six members in 2006. According to the proxy, two independent trustees are expected to retire in 2006 after reaching the board's mandatory retirement age of 72. Currently, the board consists of five members, four of whom are deemed independent.

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