Monday 23 April 2018

Clock ticking down in Switzerland on poll to limit executive salaries

A composite image of flags on houses in Berne and Zurich supporting the proposal to limit the pay of top executives
A composite image of flags on houses in Berne and Zurich supporting the proposal to limit the pay of top executives
Swiss resident Tina Turner

Patrick Winters

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. 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 US 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, 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 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 eight 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.

"Our position is very clear – we are opposed to the 1:12 initiative," said Ulrich Spiesshofer, chief executive officer of ABB, the world's largest maker of power transformers. "It would strongly weaken Switzerland's economy, its competitiveness and the ability of Swiss companies like ABB to compete internationally."

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 US, 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 heads the youth wing of Switzerland's Social Democratic Party.

Latest polling for the ballot signal support is waning. A survey released last week showed 54pc of voters oppose the proposal, 36pc were in favour and 10pc 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.

Public opposition to excessive compensation peaked when it emerged in February that Novartis planned to pay outgoing Chairman Daniel Vasella $78m 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 0.3pc 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 and Vitol SA. At least five of Europe's 20 highest-paid CEOs work for Swiss companies. Joe Jimenez of Novartis, Switzerland's highest earning CEO, earned 13.2 million Swiss francs in 2012 and Roche Holding's chief Severin Schwan received 12.5 million francs. That compares with an average of about €2.7m 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 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.

"This is a disaster for this country," said Holcim's Aebischer. "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 10pc than in Japan, the UK, the US 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, Mr 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. That's a sentiment the 1:12 pay campaign can agree with.

"It's surprising that we even have the chance to win it," Mr 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, Roth has been leading demonstrations outside Credit Suisse'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," Mr Aebischer said. (Bloomberg)

Irish Independent

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