Swiss weigh slashing top pay in landmark vote



Instead of the famous Swiss ensign — a white cross on a red background — two numbers, 1-12, are displayed.

 The banners showing up here and in dozens of other Swiss towns symbolize the goal of a controversial upcoming vote in Switzerland aimed at restricting the pay of the highest-paid executive in a company to 12 times what the lowest worker in the same firm receives. 

The salaries of top managers have climbed sharply around the world in recent decades — and Switzerland is no exception.

 Companies argue that they will lose valuable executives if they don’t keep pace with pay increases in this globalized world of business. The average Swiss citizen, however, appears increasingly fed up.



Earlier this year, the Swiss voted in favour of the so-called Minder, or ‘fat-cat’ initiative, which will see Switzerland impose a binding shareholder vote on the compensation for a firm’s board of directors and management. Now, the Swiss are heading back to the polls on November 24th to vote on a proposal to go one step further by dramatically restricting executive pay to a 1-12 ratio.



“Switzerland is a country with an egalitarian culture,” explains Stefan Grotefeld, an assistant professor in ethics at the University of Zurich, pointing to its tradition of direct democracy. “Of course, there was always an elite group in society, but they acted modestly and accepted that Switzerland is a country where all citizens are equal,” Grotefeld says.

“

In Switzerland, people are very sensitive to inequality, and (the jump in executive pay) led many in the country to think that something is going wrong that contradicts the culture of the country,” he tells The Local.



So far, it appears to be a tight race. In an October survey for the Swiss Broadcasting Corporation, 44 per cent of respondents said they would vote against the 1-12 initiative, while 44 per cent were in favour and another 12 per cent were undecided.



The battle for votes is intense. The Young Socialists (JUSO), who launched the 1-12 initiative by collecting the 100,000 required signatures, will hold demonstrations throughout the month before the vote. 



One recent evening, they cheekily projected their 1-12 slogans via lasers onto the premises of Swiss banking giant UBS in the heart of Zurich. Opponents of the initiative have also been active, issuing warnings about the initiative via prominent placards in city centers and high-profile interviews in the country’s major newspapers.



JUSO argues that the ratio between the highest- and lowest-paid workers has accelerated in recent decades in Switzerland. In 1984, the CEOs of the biggest Swiss companies earned around six times as much as the average worker, according to JUSO.



That ratio has now climbed to 1-43, JUSO says. The group argues that by curbing executive salaries, pay will be more fairly distributed, helping the overall economy.



“For us, it is clear that it is the people who decide the rules of the game,” JUSO says on its website. “In our democracy, we all decide together and not just a few top managers.”



According to a study on salaries released this year by Travail.Suisse, a federation of 11 trade unions, many of Switzerland’s largest firms pay their top executives more than 100 times what the lowest-paid worker takes home, with the highest ratio reaching 1-261.



Swiss trade union, Unia, has launched an app that allows workers to calculate how long some of the top CEOs in Switzerland would have to toil in order to earn their monthly salary. The answer? Not long.



Using the median monthly Swiss salary of 6,000 francs, it would take Credit Suisse CEO Brady Dougan just eight minutes to earn that amount (based on his 2009 compensation), followed by Novartis CEO Joseph Jimenez at nearly 57 minutes, and Nestlé Chairman Peter Brabeck at 107 minutes (based on their 2012 compensation). “This (1:12) instrument will bring the Swiss economy back to reality,” claims David Roth, JUSO’s president.



SEE ALSO: SWISS SUPPORT RISES FOR REDUCED EXECUTIVE PAY 

While the Swiss worry about the pay gap, it’s not as huge as in other countries. The Economist earlier this year released calculations that showed a Swiss employee earning the lowest wage must work just under five days to earn what the CEO of their firm earned in an hour, which it reckons is the narrowest gap in Europe behind Norway.



By contrast, the lowest earners in Italy had to work over 10 days and those in Spain over 20 days to match their CEO’s hourly wage. The lowest salary for a CEO in Switzerland last year was some two million francs ($2.2 million) and the highest was 13 million francs, according to a recent study by PricewaterhouseCoopers.



A survey this month from GMI Ratings showed that the ten highest paid executives in the United States each took home more than $100-million for the first time ever. Those who oppose the initiative, including some of the country’s largest firms, business lobby group economiesuisse and the Swiss Employers Association, warn that if it is successful it could have serious repercussions for the Swiss economy.

A major source of concern is it would force the government to intervene in the free market by imposing the 1-12 ratio on firms. Some of Switzerland’s best-known companies are publicly voicing their concerns.



The CEO of drugmaker Novartis, Pascal Brenneisen, sent letters to employees and Novartis pensioners encouraging them to vote ‘no’ to the initiative as he warned that it could damage Switzerland as a business location, according to the Swiss daily Tages-Anzeiger. The majority shareholder of Kühne + Nagel, Klaus-Michael Kühne, told Swiss business magazine Bilanz that the shipping company would be forced to move its headquarters away from Switzerland if the initiative succeeds.



Critics of the initiative also argue that the drastic reduction in salaries of top earners will lead to a shortfall in social security contributions. Taxes for all workers may then have to be raised in order to make up for those losses.



Roland Müller, the new head of the Swiss Employers Association, concedes that rising executive salaries are an issue but says the initiative isn’t the solution. He believes it could damage the Swiss economy, and firms will find ways to get around the 1-12 ratio. 



He argues that the debate will not disappear even after the vote, and that it’s up to companies and their shareholders to find a workable solution instead of the government.



“It is the task of the company and the general shareholders meeting to determine how much the management or the board should earn, and that it should remain in a sensible ratio,” Müller tells The Local.



“One is following this trend (of rising executive salaries) with concern,” he says.

“These salary excesses are not good, and must be corrected. But I’m convinced these changes will happen because the topic is being discussed in Switzerland and companies will do something about it.”