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Swiss mull slashing 'fat-cat' salaries

Catherine McLean · 20 Nov 2012, 18:35

Published: 20 Nov 2012 18:35 GMT+01:00

The Swiss will vote on an initiative in March that could put an end to the big pay hikes of top managers at publicly-listed companies in the country.

If the “rip-off salary” initiative is approved, shareholders would have an annual binding vote on the total compensation of a company’s board of directors and management. Executives would also bid adieu to other perks like compensation paid in advance or golden parachute rewards upon departure.

Executive compensation has become a topic of heated discussion and ample hand wringing around the world since the financial meltdown of 2008. A “yes” to the initiative would instantly thrust Switzerland into the international spotlight as one of a handful of countries taking concrete steps to rein in rocketing executive pay.

“This is not a Swiss issue,” Thomas Minder, a small businessman in Schaffhausen and a senator, tells The Local. “All over the world, there’s the same discussion.”

It hasn’t been easy getting to this point. Minder embarked on his odyssey to change executive pay when he handed in his initiative nearly five years ago. He blames the delay on intense lobbying by pro-business groups and a drawn-out political debate in the capital of Bern.

The current executive pay system is rotten, Minder says. To start with, he says, the salaries of top managers have increased dramatically and don’t necessarily reflect the performance of their companies.

Top executives at companies such as drug maker Novartis and the big banks UBS and Credit Suisse have come under fire in recent years for multi-million-franc pay-outs to their top leaders. Minder believes it’s time that executives are paid according to their performance, whether measured by profits or share price.

Big pay packets should not be a given every year, he says. “Not one (publicly-traded) company, not in Switzerland, not in the world, knows a minus,” Minder says. “I wouldn’t have launched the initiative if there would be a minus system in compensation.”

Payments granted to executives before they start work, along with severance payments awarded to departing managers, also stoke Minder’s ire. “There is no meaning or no explanation why a guy getting kicked out should get a golden parachute.”

Many of his fellow Swiss citizens are also fed up with soaring executive pay. According to a GfS Bern poll in May, 77 per cent of people questioned said they were definitely or somewhat for the initiative.

Although Switzerland is clearly prosperous, those making up its large middle class are increasingly unhappy and uncertain, according to a recent study from the Avenir Suisse think tank. The study points to a source of their discontent: income gains among the highest earners have outpaced those of the middle class during the past two decades.

The "winner takes it all” mentality has left the middle class feeling like they’re falling behind, the report said.  Still, not everyone thinks Minder’s initiative is a wise idea.

Business lobby group Economiesuisse says there are isolated excesses. But in general, the pay ratio between executives and employees in Switzerland is smaller than in other countries, Meinrad Vetter, the group’s head of regulatory affairs and competition, tells The Local.

He acknowledges that salaries for top managers have increased in recent years thanks to globalization and the subsequent “internationalization of management.” Higher salaries in Anglo-Saxon countries put pressure on compensation in other parts of the world, he says.

Vetter says a better solution would be parliament’s counter proposal, supported by Economiesuisse, among other organizations. This proposal would let shareholders decide for themselves if they want to have a binding vote on executive pay.

Vetter worries that the rip-off initiative, if passed, could damage Switzerland’s attractiveness as a good place to do business for firms around the world. The increased bureaucracy could make companies think twice about coming, he says.

 “It’s the wrong solution,” Vetter says. “It threatens the success of the Swiss export model and gambles with Swiss jobs.”Some heads of Swiss companies, including Nestlé chief executive officer Paul Bulcke and Novartis CEO Joe Jimenez, have spoken out against the initiative and warned about the long-term consequences for the Swiss economy.

Story continues below…

The initiative isn’t yet on the radar of executives who talk to Guy de Brabois, country manager at recruitment firm Robert Walters in Zurich. The fallout would be limited, as only Swiss-listed companies would be affected and there would be no actual cap on executive salaries, he tells The Local.  “I see it more as a corporate governance rule…than a real intention to push salaries down.”

Minder insists, perhaps optimistically, that the initiative will serve as proof to the business world that their money is safe in Switzerland.

Besides, the Swiss won’t be the first, as he points out: Norway, Sweden and the Netherlands all have binding votes on shareholder pay, and the European Union is reportedly drawing up similar plans.

“Where are shareholders going?” Minder asks. “They go where their money is the most protected…this would be in Switzerland.”

He won’t be upset if the initiative chases some executives abroad. He would like to see more of the Swiss small-town mentality come back to the boardroom.

Business leaders would have to do their best because everyone in town knows them and there won’t be a second chance if they mess up, he says.“If (they are) just willing to come to Switzerland for ten million francs, we don’t want those American, British guys here.”

Catherine McLean (news@thelocal.ch)

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