Switzerland says Ja and limits “fat cat” salaries
see also the http://www.cnbc.com/id/100516799 CNBC article by Carolin Roth
With close to 68% of the votes and a winning result in each of the 26 Cantons, Switzerland has voted yes to the referendum to give executives pay binding decision rights to shareholders. The new rules will be part of the the Swiss constitution and will allow shareholders to vote, even electronically, annually on management compensation with veto powers.
It also bans the payment of sign-in and exit bonuses, m&a bonuses and consulting contracts.
The vote highlights the Swiss strong will to enhance transparency and give more power to shareholders. The recent issue with the former Novartis CEO exit package has further underlined the gap between shareholders and population understanding of a fair and competitive compensation to what was seen as an exaggerate exit bonus.
Swiss Competitiveness not in danger
The main concern for these that lobbied for the referendum proposal to be rejected was that the competitiveness of Switzerland as a place to do business will be impacted, as many multinational companies might opt for other locations where the executives compensation doesn’t have to be decided by shareholders.
I think that this will not be the case and Switzerland will continue to be highly competitive for several reasons. First the WEF competitiveness survey, topped by Switzerland in the last few years, does not consider executive pay as a criteria. Secondly for executives Switzerland remains a highly competitive place to work due to the low taxation (30% on average vs. 48% of Germany and 45% of England) and very high quality of life.
Additionally the fact that shareholders have now the right to vote on executives pay doesn’t necessary mean that they will not approve competitive salaries. It will however enhance transparency and avoid further situation where a top manager, regardless of the effective performance, will receive lavish sign-in and sign-out bonuses.
Transparency in a post-financial crisis economy
The 2008 financial crisis has left a mark in Switzerland too. The overall perception of the population is that top managers come and go leaving too often the problems behind them. Regardless of several instances of poor performance their paycheck remained unaffected and this is not acceptable. It also tries to end a short term top management mentality by banning sign-in and exit bonuses.
The recent EU decision to cap banking bonuses to one year’s base salary is another signal that this reform might be adopted by other European countries too (Denmark and the Netherlands already have a binding shareholder vote on executives compensation).
– Swiss Vote on giving executive compensation voting powers to shareholders passed with a large margin potentially opening a new era in corporate transparency;
– Swiss Competitiveness should be largely unaffected by the change as the criteria that make Switzerland one of the most competitive remain.
– The 2008 crisis underlined the failure of a “hands-off” approach is among the reasons for the need of more transparency and shareholders power;
– Other European countries might implement similar rules, particularly in the banking sector, but will be much slower in doing so.