A Proposal To Limit Swiss Executive Pay To 12 Times That Of Low-Paid Employees Has Fat Cats Worried
By Adam Taylor
On Nov. 24, Swiss voters will go to the polls to vote on a radical new idea — limiting the monthly pay of the highest earners in Swiss firms to no greater than the yearly pay of the lowest earners. It’s being called the 1:12 Initiative — and it sure has some people worried.
To understand the context of the vote, you need to know two things about Switzerland. First, the country has a relatively unique system of direct democracy — if 100,000 people sign a proposed change to the constitution, or “popular initiatives,” a referendum is held. If a majority of voters and cantons (Swiss states) agree with the proposal, the change can become law.
The second factor is how these Swiss initiatives have been used recently. Earlier this year Swiss voters agreed to an idea proposed by entrepreneur Thomas Minder that limited executive (in his words, “fat cat”) salaries of companies listed on the Swiss stock market. On the other end of the spectrum, a proposal to give every Swiss adult an unconditional income of $2,800 a month recently gained enough signatures to be voted on.
The 1:12 Initiative lies somewhere between these two extremes in terms of its radical ambition, but its core idea comes from the same place — an angst in Switzerland, a country most famous for centuries of private banking, that executive pay and income inequality are out of control.
To understand the thought process, Business Insider called David Roth, the leader of the youth wing of Swiss party the Social Democrats, and one of the architects of the plan. Roth explained that high executive salaries only became a big issue in 2002 or so, and by 2006/7 they became a public issue. The preparation for the 1:12 Initiative began in 2009.
“It’s really just a thought process that says no-one should earn more in a month than the lowest-paid person in the same company does in a year,” Roth says. “You shouldn’t just say a maximum salary, because what we really want is a relationship between the lowest and the highest. There are others who say that people shouldn’t earn over, say, a million, but in our opinion it is not really the number.”
That sounds nice, but what would it look like in reality? Statistics published in the Swiss press suggest that many companies currently pay their CEOs salaries that are hundreds of times the salaries of their lowest-paid workers; for example, the ratio for health care company Roche is reportedly 1:236, and for pharmaceutical giant Novartis it’s said to be 1:219. So, would a company where the CEO earns 12 million Swiss francs a year suddenly start paying its receptionist 1 million Swiss francs a year? Or will the receptionist’s salary of 40,000 Swiss francs a year result in a CEO with a 480,000 Swiss franc salary?
“It’s wrong to say it will do one of those extremes,” Roth counters. “I think it will be both. First of all the high salaries will go down, but then what will happen with the money that is available after that? We hope that some of it will go to the lower-paid workers.”
“The government of my district is predicting that if the initiative is accepted we would have lower tax of around 9 million Swiss francs. Next week I will be there in parliament and we will discuss tax reductions for companies and rich people, which will cost hundreds of millions of francs,” Roth says. “[People] always think that the money that [executives] wouldn’t be earning would just disappear, and that’s just not the reality. The money won’t just disappear. It’ll probably go to lower-paid workers, it may also stay within the company and be reinvested. That ought to have a good effect on our economy.”
Others disagree. According to World Radio Switzerland, Novartis, Nestle, Bobst, and SBB sent thousands of employees letters asking them to vote no to the 1:12 initiative, arguing that it would make Switzerland a less desirable place to do business. Earlier this year the CEO of commodities giant GlencoreXstrata said the company would consider leaving Switzerland if the law passed. “I can’t believe that Switzerland would cause such great harm to its economy,” Ivan Glasenberg said in an interview with the SonntagsZeitung. “And I say that not just as the head of a company, but as a Swiss citizen.”
“I think it’s quite arrogant of some people to think that big companies will disappear,” Roth says of that criticism. “Big companies are not here because they can pay the managers high salaries. Big companies are in Switzerland because we create really good conditions for those companies. We have really well-educated people, we have a really good level of infrastructure, we have a health care system that is working, we have social security, and public security, of course, because of the social security. You are able to walk the streets — it doesn’t matter how rich you are, you are safe here in Switzerland. Well-educated people, good infrastructure, that is the reason why these companies are here, not because they can pay those high salaries.”
There’s a bigger question though. Anyone who’s ever been to Switzerland knows that life is nice there; in a recent OECD poll, the country came in at the top for “life satisfaction.” So why does Switzerland need to change?
“In the past in Switzerland, it was usual that someone showed off their wealth,” Roth says. “They had some modesty in Switzerland 30 years ago. Thirty years ago, there was a relation between the highest and the lowest salary — a relation of 1:6.” For decades, Roth argues, as production rose in Switzerland, normal pay and executive pay rose in proportion, and that only changed 10-15 years ago.
“So you see, it’s really not Switzerland, this latest development.”
Whether Switzerland agrees is another matter. It’s relatively rare for initiatives to pass, but recent polls have shown the yes and no votes are nearly tied, and Minder’s “fat cat” initiative passed with 67.9% in March.
“I’m optimistic,” Roth says. “We have our chance. We’re up against the big companies who spend millions. I can tell you that our opponents are nervous. I had a radio talk show before, and my opponent became a little aggressive. ”
“I think she’s a bit nervous,” he explains.
Courtesy: Business Insider