Swiss Voters Approve a Plan to Severely Limit Executive Compensation

Reply Mon 4 Mar, 2013 08:51 am
Considering the growing, and dangerous, plutocracy in the USA, this Swiss plan should be a model for us to limit executive compensation.

Published: March 3, 2013

GENEVA — Swiss citizens voted Sunday to impose some of the world’s most severe restrictions on executive compensation, ignoring a warning from the business lobby that such curbs would undermine the country’s investor-friendly image.

Thomas Minder, an entrepreneur and member of the Swiss Parliament who turned a personal fight against Swissair into a nationwide referendum against “rip-off merchants," spoke to the news media on Sunday.

Mr. Minder with others who supported the initiative, waiting for results.
The vote gives shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors. Pension funds holding shares in a company would be obligated to take part in votes on compensation packages.

In addition, companies would no longer be allowed to give bonuses to executives joining or leaving the business, or to executives when their company was taken over. Violations could result in fines equal to up to six years of salary and a prison sentence of up to three years.

The outcome of the referendum was a triumph for Thomas Minder, an entrepreneur and member of the Swiss Parliament (no relation to the reporter), who turned a personal fight against the management of Swissair, the flagship airline that collapsed in 2001, into a nationwide referendum against “rip-off merchants.”

Almost 68 percent of Swiss voters backed Mr. Minder’s proposals, according to results announced late Sunday.

“I am very proud of the Swiss people who have sent a very strong signal to the establishment,” Mr. Minder told Swiss television. Despite the fact that his referendum had been opposed by Switzerland’s main political parties, Mr. Minder, who is an independent member of the Swiss Parliament, called on all lawmakers to cooperate in swiftly enacting the law.

Nonbinding shareholder votes on executive pay have also been introduced in countries like the United States and Germany in response to Occupy Wall Street and other movements that have attacked the corporate excesses and abuses that fueled the world financial crisis. On Thursday, the European Parliament agreed to limit bonuses of bankers to two times their salaries.

In the case of Switzerland, however, Mr. Minder called for a much broader and tougher clampdown, striking a chord among citizens after the world financial crisis exposed major management failures at the financial giant UBS and other Swiss institutions.

Mr. Minder’s case was unexpectedly bolstered last month when Novartis, the pharmaceutical company, agreed to a $78 million severance payout for its departing chairman, Daniel Vasella. That set off a political storm and intense criticism from some investors, forcing Novartis to scrap the payout and prompting Mr. Vasella to tell shareholders that it had been a mistake.

Cristina Gaggini, an official from EconomieSuisse, the Swiss business federation, said Sunday that the business lobby had made some “major errors” in its efforts to stop Mr. Minder’s decade-long crusade, adding that the Novartis payout plan had amounted to a turning point in the referendum campaign.

After that, Ms. Gaggini said on Swiss national television, “It became impossible to return to a reasonable debate.”

Ahead of the vote, EconomieSuisse and Mr. Minder’s other opponents warned of dire consequences if the referendum passed, notably in terms of keeping Switzerland attractive to foreign companies and investors.

But Mr. Minder argued that Switzerland would benefit if it gave shareholders control over the companies in which they invested. Well over half the shares in many of the country’s largest companies are already held outside the country. “Investors put their money where they have the most to say, and that will clearly then be Switzerland,” Mr. Minder said ahead of the referendum.

Robin Ferracone, chief executive of Farient Advisors, an American advisory firm that specializes in executive compensation issues, said that even though the referendum would add “more burden to corporate processes, I do not predict an exodus from Switzerland,” because the tax and other benefits of being based in the country would still outweigh “the inconvenience” of having to adjust to stricter executive compensation rules.

Mr. Minder started his campaign after his family-owned business came close to bankruptcy because it had been a supplier of toothpaste and other body care products to Swissair, the airline that was grounded in October 2001.

While Swissair had run out of money, it still managed to pay an advance earlier that year of 12 million Swiss francs (about $9.6 million at the time) to a chief executive, Mario Corti, who then left shortly after the airline’s collapse.

Mr. Minder then broadened his campaign, accusing several bankers and other prominent executives of receiving “rip-off” pay packages. His campaign gained such momentum in recent months that relatively few such executives confronted him publicly, in this neutral and compromise-seeking country.

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Reply Mon 4 Mar, 2013 08:56 am
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Reply Mon 4 Mar, 2013 01:42 pm
Not sure how I feel about this one. I only have an issue with the compensation packages when they are paid to CEO's who have failed. If a CEO has done the job they were hired for and the business has continued to grow and be profitable then I don't see any harm in a bonus check.
Walter Hinteler
Reply Mon 4 Mar, 2013 01:48 pm
But you don't have the right to vote in Switzerland, I think.

The situation in Europe is "tough for top earners":
Times are tough for Europe's top earners. Last week, the European Union agreed to introduce a cap on bankers' bonuses in a crackdown that will affect several thousand bankers in London alone. Then, this weekend in Switzerland voters handed shareholders a say on board and executive salaries in a bid to avoid exorbitant pay hikes.

These two decisions reflect a new mood currently sweeping the Continent.

Excess Under Siege: Europe Gains Momentum against Corporate Greed
Reply Mon 4 Mar, 2013 01:55 pm
@Walter Hinteler,
I know I can't vote there. My comment was more along the lines of someone pushing the same type of laws here in the US. Since they passed there, it can't be long till someone proposes the same thing here.

My tax fee 2 cents.
Reply Mon 4 Mar, 2013 03:01 pm
I think we are free to comment on the affairs of other countries. They certainly seem willing to comment on ours.
Walter Hinteler
Reply Mon 4 Mar, 2013 03:13 pm
Of course.
(Referenda are part of the Swiss constitution since 1798, by the way, but have been used in the various Swiss cantons/republics already since the 13th/14th century.)
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Reply Mon 4 Mar, 2013 04:05 pm
Baldimo wrote:

Not sure how I feel about this one. I only have an issue with the compensation packages when they are paid to CEO's who have failed. If a CEO has done the job they were hired for and the business has continued to grow and be profitable then I don't see any harm in a bonus check.

The trouble is that compensation for top execs has gotten crazy, with a number of them make over a thousand times what the average employee in the company makes. Moreover, more often than not, the compensation is not set in an arm's length transaction. The board members may be influenced by one method or the other, and they may be, for instance, selected in coordination with CEO's of other corporations.
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Reply Tue 5 Mar, 2013 09:30 am
This isn't limited to Switzerland, it's currently being discussed in the EU. The central thrust is not necessarily to limit the amount of pay a banker gets, but to discourage excessive risk taking which caused the financial meltdown in the first place. If 90% of someone's pay is made up of bonuses they're more likely to take risks than if it's a far smaller figure.

Chancellor George Osborne has told European Union finance ministers that he cannot support proposals to curb bankers' bonuses.

At a meeting of the EU's Economic and Financial Affairs Council in Brussels he appealed for further negotiations.

The meeting discussed a possible "tweaking" of plans to limit bonuses to 100% of a banker's annual salary, or to 200% if shareholders approve.

The City of London fears the rules will drive away talent and restrict growth.

Most members of the 27-nation EU are firmly behind the proposals, which are part of wider measures requiring banks to strengthen their capital buffers in the hope of avoiding another financial crisis.

The proposals still need formal approval from the European Parliament and EU states.

Speaking after the meeting, Mr Osborne said Britain already had the toughest regime in Europe for bankers' pay and bonuses and that a cap could "have a perverse effect".

Although ministers could still push through the proposals without the UK's support, German Finance Minister Wolfgang Schaeuble said ``it would be better'' to reach consensus.

But Michel Barnier, the EU commissioner for the single market, said high bonuses were behind excessive risk-taking by bankers. "Enough is enough. We've got to put a stop to that."

Mayor of London Boris Johnson has dismissed the idea as "self-defeating". London is the EU's largest financial centre.

On Monday, a spokesman for Prime Minister David Cameron said: "We continue to have real concerns on the proposals. We are in discussions with other member states."

Reply Tue 5 Mar, 2013 11:55 am
London is a relative powerhouse when it comes to financial institutions. It will not agree to anything that might adversely affect them.
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