Thomas Aebischer, who grew up on a farm, studied at Harvard Business School and traversed four continents to secure the top finance post at the world’s largest cement maker, Holcim Ltd. (HOLN) On Sunday, Swiss voters will decide if he deserves his salary.
Nine months after putting checks on excessive payouts for executives in a referendum, Europe’s best-paid voters will decide whether to cap the highest wages in a company at 12 times the lowest pay. Swiss corporations and the government have joined forces to oppose the so-called 1:12 initiative, which is forecast to be rejected.
“When you read the text of the proposal -- it’s very simple, very clever, very misleading,” Holcim Chief Financial Officer Aebischer said in an interview in Zurich. “You would never go to the U.S. and think: how much can I pay people now? You pay whatever you need to pay in order to attract them.”
Multinational companies including Nestle SA (NESN), the world’s biggest food company, provide one in three jobs in land-locked Switzerland and also pay a third of all taxes on company profits to fund schools, roads and infrastructure. Still, ballooning executive payouts in recent years while company profits slumped and taxpayers bailed out Switzerland’s largest bank UBS AG (UBSN) have led to calls for a more equal distribution of wealth.
While backers of the initiative, led by Young Socialist party leader David Roth, only had to garner 100,000 signatures from Switzerland’s 8 million citizens to trigger the ballot, they’ll need to overcome a historical aversion to business-unfriendly initiatives which has helped preserve Switzerland’s status as a berth for international companies.
“I’m sure that some companies that are thinking about moving to Switzerland are just waiting at the moment and seeing what will happen,” said Michael Grampp, an economist at Deloitte in Zurich. If passed, the law would have a greater impact on larger global companies as many small- and medium-sized enterprises have a narrower wage spread, he said.
Voters have previously rejected longer holidays, and a proposal aimed at ending tax competition between Swiss cantons, entrenching Switzerland’s position as the world’s second-most competitive country behind the U.S., according to an annual ranking published by IMD’s World Competitiveness Center.
Pay-limits supporter Roth, 28, said the proposal is not about hurting companies or Europe’s 10th-biggest economy, it’s about distributing wealth more equally.
“In Switzerland it’s not well received when people just show off, when a certain decency is missing,” said Roth, a teacher’s son who took a break from studying philosophy and contemporary history to head the the youth wing of Switzerland’s Social Democratic Party in 2011.
Super-rich invest speculatively in financial markets and don’t contribute to the real economy -- a more equal distribution of wealth would stimulate consumption because lower earners are more likely to spend money in Switzerland, he said.
Latest polling for the ballot signal support is waning. A survey released by researcher gfs.bern on Nov. 13 showed 54 percent of voters oppose the proposal, 36 percent were in favor and 10 percent undecided. That compares to a poll less than three months after the March referendum limiting severance pay and signing bonuses which suggested the 1:12 proposal could pass.
“I’m more on the side of not going for it,” Juerg Fedier, the interim CEO of Pfaeffikon, Switzerland-based engineering company OC Oerlikon AG (OERL) said in a phone interview.
“It’s not up to the government to decide on private economic enterprises. I think it would be a major mistake,” he said.
Public opposition to excessive compensation peaked when it emerged in February that Novartis AG (NOVN) planned to pay outgoing Chairman Daniel Vasella $78 million for not competing with the company after he left. That payout was slashed to less than a tenth of the original after a public outcry.
The initiative’s supporters say that, if passed, it will affect only 0.3 percent of Swiss companies and 3,400 managers. Switzerland is home to Europe’s largest drugmakers as well as the headquarters of the world’s largest oil traders Glencore Xstrata Plc (GLEN) and Vitol SA.
At least five of Europe’s 20 highest-paid CEOs work for Swiss companies. Joe Jimenez of Novartis AG, Switzerland’s highest earning CEO, earned 13.2 million Swiss francs ($14.5 million) in 2012 and Roche Holding AG (ROG)’s chief Severin Schwan received 12.5 million francs. That compares with an average of about 2.7 million euros ($3.7 million) for CEOs of companies in Europe’s Stoxx 600 Index which have disclosed 2012 executive salaries, according to data compiled by Bloomberg.
The pay scale at Holcim, formed 101 years ago in the Swiss village of Holderbank, underscores the challenge for multinational companies to comply with the proposed rule.
Chief Executive Officer Bernard Fontana earned a base salary of 1.75 million francs in 2012, 35 times the lowest paid employee. The proposal does not mention bonuses.
If passed, companies could work around the law by paying executives consulting fees or outsource the lowest paid jobs to another company, said Stephane Garelli, Professor at the IMD business school in Lausanne, Switzerland. Holcim doesn’t provide a breakdown for the rest of the executive board, which including Fontana was paid 14.5 million francs.
“This is a disaster for this country,” said Holcim’s Aebischer, who grew up on a farm in the Emmental cheese-making region in Switzerland. “It’s a real risk and a real danger for Switzerland remaining an attractive place to do business.”
Switzerland, home to Formula One driver Kimi Raikkonen, and singer Tina Turner, has more equitable income than the average of 34 countries in the Organisation for Economic Co-operation and Development, according to OECD data from 2010.
There’s a smaller gap between the richest and poorest 10 percent than in Japan, the U.K., the U.S. and Canada, the data showed. At $7,765.5, Swiss also have the highest gross average monthly wage in Europe, according to the most recent UN data.
Given Switzerland’s relative income equality, the 1:12 proposal would be a drastic step, Garelli said.
“Outside of communist countries, it would definitely be the strictest executive pay law,” he said by phone.
Still, with Swiss citizens having a direct say on lawmaking through referendums, companies need to take into account how their compensation policies are perceived by the public, Christian Stiefel, managing director at Swissholdings, a group representing Swiss multinational companies, said by phone. That’s a sentiment the 1:12 pay campaign can agree with.
“It’s surprising that we even have the chance to win it,” Roth said. “That’s already given a huge shock to our opponents.”
As the vote looms, Swiss companies are helping to fund billboard adverts at train stations and other public places warning the public to vote against “state imposed salaries.” Meanwhile, the Young Socialists’ Roth has been leading demonstrations outside Credit Suisse Group AG (CSGN)’s offices in central Zurich.
“I believe that the Swiss people will be smart enough to see the problems if they would vote yes to support this initiative,” Aebischer said.
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