With more than 100,000 Swiss citizens having signed a petition to limit “fat-cat” pay, voters will decide at a March 3 referendum whether top executives should have their compensation set by shareholders. While a poll shows a majority may vote yes, the industry’s lobby group warns that it will drive out tax-paying companies and is campaigning for a softer counter proposal.
“If you have this kind of limitation on executive pay, why should an American company put their European headquarters into Switzerland,” Philip Mosimann, CEO of Bucher Industries AG (BUCN), a Swiss maker of street sweepers with a market valuation of 2.1 billion francs ($2.3 billion), said in an interview. “They would leave. I’m certain of that.”
The vote is the brainchild of Thomas Minder, a Swiss lawmaker and managing director of herbal toothpaste business Trybol AG, whose petition blames highly-paid “fat cats” -- “Abzocker” in German -- for the financial crisis. If successful, the proposal will give shareholders an annual ballot on executives’ pay and block big payouts for new hires and for managers when they leave companies.
Schaffhausen to Fordham
“Shameless executive payouts have very clearly come from the U.S.,” said Brigitta Moser-Harder, an activist shareholder, who owns shares of the country’s biggest bank UBS AG (UBSN) and largest engineering company ABB Ltd. (ABBN) and regularly speaks on the subject at annual shareholder meetings and on Swiss TV. “People have been outraged about high earners for years.”
Minder, 53, has led a five-year campaign after collecting the signatures needed for a referendum. The businessman, who has an MBA from New York’s Fordham University and runs his family’s 113-year-old company, grew up near Schaffhausen, a small city bordering Germany that’s home to Swiss companies such as automobile parts-maker Georg Fischer AG (FI/N).
The former Swiss army company commander wants to curb what he sees as a culture of chiefs who only stay for a short time and are still rewarded with high salaries, according to his campaign website. Minder plans to eliminate sign-on bonuses, as well as severance packages and extra incentives for completing merger transactions. He proposes to punish executives who violate the terms with as long as three years in jail.
A survey conducted in January by researcher gfs.bern showed 65 percent of 1,217 voters supported Minder’s proposal. Switzerland holds regular referendums for issues that are able to draw the required 100,000 signatures. In 1989, an initiative to get rid of the Swiss army was rejected by the Swiss people.
“I hope it doesn’t pass, I don’t think it's good for Switzerland at all,” ABB CEO Joe Hogan said in an interview today. “For multinational companies like ABB, we have to attract and retain the best talent in the world. If that inhibits us, and I think this initiative could, that’s a problem.”
Opposition to excessive executive pay has been building in Switzerland, even though the country has the highest average monthly wage in Europe. Minder and Moser-Harder say payouts such as the 71 million francs of shares that Dougan, Credit Suisse (CSGN)’s CEO, received in 2010 under an incentive program created five years earlier show how executive compensation has become disconnected from average salaries.
At least five of Europe’s 20 highest-paid CEOs work for Swiss companies, according to data compiled by Bloomberg. The list includes three Americans, Dougan, Hogan and Joe Jimenez of Novartis AG, as well as Roche (ROG)’s Austrian chief Schwan and Nestle’s Bulcke of Belgium.
Jimenez, Switzerland’s highest earning CEO, got 13.2 million Swiss francs in 2012 and Schwan received 12.5 million francs. That compares with an average of about 2.7 million euros (3.3 million francs) for CEOs of companies in Europe’s Stoxx 600 Index which have disclosed 2012 executive salaries, according to data compiled by Bloomberg.
Minder’s supporters see swollen salaries as an “Americanization” imported by investment bankers in the 1990s. The proposal has broad support among low- and middle-income earners and also among those with vocational training, Susanne Leutenegger Oberholzer, a Social Democratic Party lawmaker, said at a Jan. 31 press conference in Bern.
The plan would result in one of the world’s strictest laws on executive pay, according to Robert Kuipers, a partner in charge of remuneration services in PriceWaterhouseCoopers’ Zurich office. The U.K., by comparison, has instituted a non-binding “say on pay” rules.
Switzerland would become less attractive to foreign multinationals such as offshore drilling contractor Transocean Ltd. (RIG) and oilfield service company Weatherford International Ltd. (WFT), which relocated because of liberal corporation laws, taxes and infrastructure, said Meinrad Vetter, an official at Economiesuisse, a lobby group for Swiss companies.
Economiesuisse has budgeted as much as 8 million francs on a campaign to block the initiative and backs a counter proposal from the government, which would automatically come into force next year if the Swiss people reject Minder’s law.
Switzerland’s largest corporations such as Novartis, Credit Suisse, Syngenta AG (SYNN) and UBS back the counter proposal, which omit Minder’s demands for a binding shareholder vote, prison sentences and a sign-on bonus ban. At the same time, the government plan would allow shareholders of individual companies to decide if they want to introduce a binding vote.
Economiesuisse’s Vetter said it was necessary to address the concerns of enraged voters.
“It’s more a question about social cohesion,” he said. “We need an answer to the Minder initiative and an answer to the anger of Swiss people about executive salaries.”
Switzerland’s ranking as the world’s most competitive country in the World Economic Forum’s annual index won’t be affected by the vote’s outcome, at least in the short term, because executive pay isn’t part of the overall assessment, said Margareta Drzeniek, who is part of the team that covers Switzerland at the WEF. It may even be a positive in the long term, assuming such a change improves social cohesion, she said.
Novartis’s Jimenez has said voters shouldn’t ignore the negative consequences of Minder’s initiative for some of the country’s biggest employers.
“From a competitive standpoint, it’s very difficult for me as a CEO to hire outside talent if any offer I make is contingent on a shareholder vote,” Jimenez said last month. “I think it puts Novartis or any Swiss company at a competitive disadvantage.”
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