The Swiss government must figure out how to translate some of the world’s toughest rules on executive pay into national law after voters overwhelmingly backed new curbs in a referendum.
Swiss voters, still smarting after the country’s biggest bank UBS AG had to take state aid during the financial crisis, approved a proposal giving shareholders a binding vote each year on executive pay with 67.9 percent of cast ballots.
Plebiscites take effect immediately and the government has said it will issue directives for implementation within the next year. Parliament will then have to amend national laws, leaving some to wonder whether the measures may not lose some of their bite.
“In Switzerland we say: The soup is seldom eaten as hot as it is served,” Philip Mosimann, chief executive officer of Bucher Industries AG, said in a telephone interview today.
Yesterday’s result is a triumph for Thomas Minder, manager of a century-old natural cosmetics company, who started the initiative against “fat cats” in 2006 and has overcome the opposition of high-profile corporate chief executive officers such as Paul Bulcke of Nestle SA, the government, and parliament in Bern. They said the curbs would damage Switzerland’s ability to serve as a base for big corporations like oilfield service company Weatherford International Ltd.
One initiative still stuck in political wrangling is the 2010 initiative to expel foreigners convicted of serious crimes -- politicians disagree about how to reconcile it with international law.
Minder’s proposal may suffer a similar fate, according to Lorenz Hess, a member of the BDP party, which opposed the initiative. “There won’t be something immediately, there will be some discussions,” Hess told Swiss television station SF1 yesterday.
Germany’s opposition today lauded the Swiss vote, raising pressure on Chancellor Angela Merkel to adopt her own tougher rules on executive pay. The European Parliament last week struck a provisional deal to ban bonuses that are more than twice bankers’ fixed pay as of next year.
“It’s not so radical as you might think at first glance,” said Janwillem Acket, chief economist at Julius Baer Group Ltd. “It’s not against high wages, but against excesses, and it is part of a European trend.”
The initiative could cause Switzerland to lose out on top talent, Stephane Rambossen, managing partner at executive search firm Veni Partners LLP, said today on Bloomberg Television’s “The Pulse” with Francine Lacqua.
“It will necessarily have an impact,” he said. “You’ll see some of the best athletes, as you do in sports or in other industries, go to Asia, to other places.”
The Swiss government has pledged to stick closely to Minder’s text, saying it understood voters’ resentment. Foreign heads of corporations receive as much as 13 million francs (13.8 million) in annual pay, while blue-collar wage earners complain immigration is pressuring their wages.
The initiative, which applies to Swiss firms listed domestically and abroad, also bans big payouts for new hires and for managers when they leave. Executives who violate the terms can be punished with as long as three years in jail.
Novartis last month withdrew a plan to pay outgoing chairman Daniel Vasella as much as $78 million to keep him from working for a rival, after details of the payout elicited public outrage.
“How it will be implemented isn’t clear yet, and that is really key,” Acket said. “I don’t believe Switzerland as a location for business will be damaged.”
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: Credit Suisse head Brady Dougan, ABB Ltd.’s Joe Hogan and Joe Jimenez of Novartis AG. Also among the top tier are Roche Holding AG’s Austrian chief Severin Schwan and Nestle’s Bulcke of Belgium.
“The negative consequences will be limited,” Bucher’s Mosimann said. “But I hope that some boards, particularly in the financial and pharmaceuticals industry, will look matters over again.”
Piggy-backing on Minder’s success, the Young Socialists are campaigning to prevent executives from being paid more than 12 times the wage of their lowest-paid employee. A plebiscite on the matter is expected in the second half of the year, the group said.