2nd UPDATE: Ethos Recommends UBS Holders Reject New Pay Plan

Shareholder activist Ethos Wednesday called for UBS AG (UBS) shareholders to reject an overhaul of the Swiss bank's pay practices at an April 15 general meeting.

Geneva-based Ethos said the new system, which came after a review of hefty executive pay packages despite massive losses, might still lead to excessive pay.

UBS, which agreed last year to put the pay plan to a non-binding, advisory shareholder vote, defended the pay plan Wednesday, saying it corrects "previous weaknesses" in compensation.

"UBS has introduced a compensation system that is closely linked to value creation by the business and oriented toward the long term," the bank said in a statement.

The recommendation from Ethos, influential because it advises many Swiss pension funds, comes as scrutiny of executive pay intensifies. In an advisory vote, shareholders of Roche Holding AG (ROG.VX) recently approved the Swiss drugmaker's executive pay.

For UBS, Ethos wants to limit bonus pay to 50% of overall compensation, saying the absence of a cap could allow bonuses to reach as much as 90% of overall pay.

"Both the shareowners and the regulatory authorities have recently put into question remuneration systems allowing for particularly high variable parts that can potentially create the wrong incentives and lead to excessive risk-taking," Ethos said in a statement.

UBS said pay caps are "inappropriate" because the bank risks no longer being able to attract talented employees if it imposes pay limits.

Former UBS top managers have returned a total of nearly 70 million Swiss francs (US$61.9 million) in what the bank has termed ongoing talks with departed executives over payouts. Since then, more pay has been handed back amid widespread public fury in Switzerland, and UBS is expected to give shareholders an update at the April 15 meeting.

Company Web site: http://www.ethosfund.ch

-By Katharina Bart, Dow Jones Newswires; [phone]; [e-mail]