Famously corporate-friendly Switzerland set to get tough on CEO pay

Switzerland has a reputation as one of the most business-friendly countries in the world. But huge salaries and bonuses for top managers of Switzerland’s listed companies could soon be a thing of the past if voters back a national initiative on Sunday.

At least 64 percent of the Swiss population – among the richest and highest-paid in the world – are expected to vote in favor of giving shareholders a binding vote in the salaries of executive and advisory boards and the board of directors, according to a poll conducted by Gfs Bern research and polling institute in mid-February.

“They should be paid according to their performance,” says Brigitta Moser-Harder, member of the Committee of the Popular Initiative against Abusive Executive Pay, which initiated the referendum. “These managers want the money and they don’t care if the company is doing well or not.”

The Minder Initiative, named for the businessman who proposed it, Thomas Minder, includes 24 constitutional provisions, including a ban on signing bonuses, bonuses for managers whose firms are taken over, and additional contracts for consulting work for other companies within the same corporate group.

Switzerland's system of direct democracy means its citizens have a binding say on an issue that took on new life across Europe and in the US with the beginning of the financial crisis in 2008.

Countries such as Germany and the United States have already given investors the right to non-binding vote on pay and bonuses, and the United Kingdom plans to implement binding measures later this year. The European Union approved a provisional agreement Thursday on new financial rules that also includes caps for bonuses for bankers – they are not to exceed one year’s salary but with shareholder approval, can rise to two years’ salary.

Mr. Minder first proposed the Swiss initiative seven years ago, and by 2008 he had collected more than the 118,000 signatures required to put the initiative to a public vote. Three years later, boosted by the financial crisis and the bailout of Switzerland’s biggest bank, UBS, costing Swiss taxpayers $59.2 billion, he won a seat in the Swiss parliament as an independent candidate.

A bane to business?

Swiss political parties in the center and right, as well as business, trade, and industry associations, oppose the initiative because they say it would strike a severe blow to the Swiss economy.

“Switzerland is the most competitive country in the world and one of the reasons is our very flexible rules for corporations,” says Meinrad Vetter, deputy head of Competition and Regulations at Economiesuisse, a business association that represents more than 100,000 Swiss companies.

But Ms. Moser-Harder says the initiative’s opponents are just trying to scare voters.

“Switzerland has many other incentives: low taxes, a stable government, very little national debt… no international company has said that they will leave the country" if the referendum passes, she argues.

Also, Minder’s initiative has teeth: Violators of the new corporate law would face three years in jail or a fine equivalent to six years of their salary. That worries many in big business.

“We would go from having the most flexible to one of the strictest laws for business … and that wouldn’t be attractive for foreign companies because top executives might be afraid that they end up in prison,” says Mr. Vetter.

...Or a boon to society?

In spite of its wealth, the income gap between rich and poor in Switzerland has continued to expand since the mid-1990s. According to trade union Travail.Suisse, the lowest-paid worker at Novartis would have to work 266 years in order to earn $16.8 million: what the pharmaceutical company’s CEO, Joe Jimenez, made in 2011.

Supporters of the Minder Initiative say that if it passes, Switzerland could become an inspiration for the rest of the world.

“[With our vote] we could have an impact by sending a signal to the economic world telling them they don’t rule the world,” says Lucienne Girardier, a writer from Neuchatel who plans to vote for the measure. “This is an opportunity to tell them it is not right to have such a difference between the salaries of the rich and those of the poor.”

Last week, a public outcry forced Novartis to cancel a $78 million bonus for outgoing chairman, Daniel Vasella, if he declined work for a competitor.

“People are getting upset and if it doesn’t stop there could be an explosion in society,” Moser-Harder says.