UBS delivered excellent financial results in 2017, maintained a strong capital position and achieved its net cost reduction target. Our Total Reward Principles provide a framework that balances sustainable performance and prudent risk-taking with focus on conduct and sound risk management practices. Our compensation structure is aligned with our strategic priorities and encourages our employees to focus on our clients, create sustainable value and achieve the highest standards of performance.
2017 performance and performance award pool
Our adjusted1 profit before tax increased 16% to CHF 6.2 billion. Net profit attributable to shareholders was CHF 1.1 billion, compared with CHF 3.2 billion in 2016, as it reflected a CHF 2.9 billion net write-down of deferred tax assets (DTAs). Excluding the DTA write-down, net profit attributable to shareholders would have increased by 22% year over year. The DTA write-down had no impact on our ability to return capital to shareholders and had a negligible impact on fully applied CET1 capital.
We maintained a strong capital position with a fully applied CET1 capital ratio of 13.8% and an improved CET1 leverage ratio of 3.7%. The Board of Directors (BoD) intends to propose a dividend of CHF 0.65 per share, an increase of 8% compared with 2016. In addition, UBS will initiate a share repurchase program of up to CHF 2 billion over three years, commencing with up to CHF 550 million in 2018.
Based on the 2017 Group and business division results, the total performance award pool was CHF 3.1 billion, an increase of 6% compared with the prior year. When determining the performance award pool, the Compensation Committee considers a range of financial factors, including risk-adjusted profit and capital strength, as well as affordability, risk profile and a focus on returns to shareholders. Revaluations of DTAs do not reflect the underlying performance of the business and are not within
management’s control; therefore consistent with prior years (when their impact has been positive), they have not affected the funding of the performance award pool. The Group Executive Board (GEB) performance award pool, including the Group CEO, was CHF 74.2 million, an increase of 3.1%.
2017 compensation philosophy and framework
Our compensation philosophy aligns the interests of our investors, clients and employees. Our approach to compensation has remained largely unchanged since we introduced our current Total Reward framework in 2012. The consistency of our approach continues to strengthen our culture of sustainable performance, accountability and appropriate risk-taking. In addition, it provides clarity in compensation discussions with our employees as well as with our shareholders.
To reinforce our culture and our approach to manage risk and to emphasize the importance we place on the sustainability of results, we deliver our variable compensation through a deferral rather than a long-term incentive plan. The potential realized pay cannot exceed the award granted other than for market movements and returns of the instruments. Therefore, our compensation plans have no upward leverage, such as multiplier factors, and consequently do not encourage excessive risk-taking. We believe UBS has a deferral regime with one of the longest vesting periods in the industry.
Following the Compensation Committee’s review of our principles and framework, enhancements were made to further align our approach with our long-term strategy and shareholder and client interests, as well as to remain competitive and comply with regulatory requirements. For example, to remain competitive, we have raised the cap for immediate cash performance awards to CHF 2 million, without impacting the overall pay levels for relevant employees including GEB members. With regard to share ownership requirements, we substantially increased the requirements for the Group CEO and the other GEB members.