The Swiss government must figure out how to translate some of the world's toughest rules on executive pay into national law and risk an exodus of big corporations 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 by a margin of 67.9 per cent. The pay limits include a binding annual shareholder vote on executive compensation for listed firms and a ban on 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.
The result a triumph for Thomas Minder, manager of a century-old natural cosmetics company, who started the initiative 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.
"In Switzerland we say: The soup is seldom eaten as hot as it is served," Philip Mosimann, CEO of Bucher Industries AG, said today.
"The big question is how it gets implemented. And there I can't venture a prognosis."
Drag on
Measures voted in via plebiscite take effect immediately, while the government amends national laws - a process that can drag on. One measure 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.
"There won't be something immediately, there will be some discussions," Lorenz Hess, a member of the BDP party, which opposed the initiative, told Swiss television station SF1 yesterday.
In issuing its ordinances, the government will stick closely to Minder's text, Justice Minister Simonetta Sommaruga said. "The people has expressed its resentment and the government understands this resentment," she said at a Bern news conference yesterday.
The salaries of chief executive officers have been a sore point with the Swiss public since UBS had to be bailed out in 2008.
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.
Clear Message
Labor union Unia said the vote sent politicians a clear message that they needed to do more to rein in corporate excesses and do more to address falling blue-collar wages.
Minder's plan applies to Swiss companies listed domestically or abroad. His success highlights the disparity between the multinational corporations like UBS and Credit Suisse Group AG (CSGN) for which Switzerland is known internationally and the small- and medium-sized businesses that form the backbone of the economy. Minder's Trybol AG has 18 employees.
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. (ABBN)'s Joe Hogan and Joe Jimenez of Novartis AG. (NOVN) Also among the top tier are Roche Holding AG (ROG)'s Austrian chief Severin Schwan and Nestle'sBulcke of Belgium.
The main change for Bucher Industries will be a higher administrative burden, given that a key shareholder is already on the board, said CEO Mosimann, who also expects little fallout for the country as a whole. The European Parliament last week struck a provisional deal to ban bonuses that are more than twice bankers' fixed pay as of next year.
Consequences Limited
"The negative consequences will be limited," said Mosimann, who received compensation of nearly 1.4 million francs in 2011, according to data compiled by Bloomberg. "But I hope that some boards, particularly in the financial and pharmaceuticals industry, will look matters over again."
In a sign of how strongly many in Switzerland feel about the matter, 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.
"The initiative must be implemented without compromise," Toni Brunner, president of the anti-immigrant Swiss People's Party SVP, told SonntagsZeitung newspaper in an article published yesterday. Brunner expects that "there will be discussions for years," according to the report.
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.
