Swiss Voters Reject High-Pay Initiative; Referendum to Limit Executive Pay Overwhelmingly Rejected

Swiss Voters Reject High-Pay Initiative

Referendum to Limit Executive Pay Overwhelmingly Rejected

NEIL MACLUCAS

Updated Nov. 24, 2013 12:34 p.m. ET

ZURICH—Switzerland stepped back from a movement to control corporate pay, overwhelmingly rejecting an initiative that would have restricted executive salaries to 12 times that of the lowest paid employee. Roughly 65% of Swiss voters Sunday opposed the 1:12 Initiative for Fair Pay, according to results from all of the country’s 26 cantons reported by Swiss television. Another 34% supported the proposal, which was named for the organizers’ belief that no one in a Swiss company should earn more in a month than someone else makes in a year.The rejection of the 1:12 initiative marks a move away from Swiss efforts to more tightly govern how companies compensate their employees that has been driven by a growing wealth gap between the country’s executive class and everyday workers.

Earlier this year, Swiss voters approved a strong say-on-pay proposal that will require a binding shareholder vote on executive salaries at all publicly traded Swiss companies when a law is finalized. Named after Swiss businessman and politician Thomas Minder, it also will ban signing bonuses, golden parachutes and other forms of compensation.

“I am very pleased at the outcome of the vote,” the head of the Swiss Department of the Economy, Education and Research, Johann Schneider-Ammann, said at a news briefing Sunday. “It will help us preserve the attraction of Switzerland as a business location and thus secure jobs.”

Opposition to the 1:12 initiative had been fierce, with the cabinet and both houses of parliament issuing recommendations that voters reject the measure because it would make Switzerland a less attractive place to for companies to do business.

The government is allowed to present its opinion to voters, under the laws governing Swiss referendums. Major companies also urged employees to think carefully before heading to the polls.

Pharmaceutical giant Novartis AG NOVN.VX -0.21% told employees in a letter that the 1:12 initiative would limit “the ability of companies like Novartis to recruit experienced employees who are capable of leading international activities.”

On Sunday, Switzerland’s corporate community expressed satisfaction with the outcome of the vote.

“It shows the Swiss want to maintain a competitive economic system and an open society in their country,” said Nestlé spokesman Robin Tickle.

The youth wing of the Social Democratic Party of Switzerland, which organized the initiative, said the country had missed an opportunity to curb executive pay that it sees as spiraling out of control.

“We’re obviously disappointed at the result, but we were faced by opponents who ran a high-profile fear campaign,” David Roth, the president of the youth wing, known as Juso, said. “One positive from the campaign, however, is that the issue of fair pay and a fair economy has been placed in the public domain.”

Business lobby group Economiesuisse said rejection of the measure showed the public had endorsed Switzerland’s model for growth. “The vote is clear backing for the Swiss economic model,” said Ursula Fraefel, a member of the directorate of Economiesuisse.

One of the backers of the initiative, the Swiss trade union group SGB said the vote had given the Swiss public the opportunity to discuss corporate pay.

“The issue of excessive pay at senior corporate level won’t go away,” said SGB spokesman Thomas Zimmermann, who added the topic would continue to be divisive.

Public anger over corporate pay reached a peak in February, when local media reported that Novartis was planning an exit package that could have totaled 72 million Swiss francs ($79 million) for former chairman Daniel Vasella .

Faced with a backlash that included public comments by the country’s justice minister, Novartis scrapped the original plan for a package worth roughly 5 million francs, including cash and shares.

The uproar caused by the incident is credited with encouraging passage of the Minder initiative.

Swiss Voters Reject Strict CEO Pay Limits in Referendum

By Catherine Bosley – Nov 24, 2013

Swiss voters rejected a proposal to limit executives’ pay to 12 times that of junior employees yesterday, a measure that would have gone further than any other developed nation.

The measure was opposed by 65 percent of voters, the government in Bern said yesterday. Polls, including one by consulting firm gfs.bern, had signaled that outcome as probable. Voter turnout was 53 percent, the highest in three years.

“It’s a big relief,” Valentin Vogt, president of the Swiss Employers’ Association, said in an interview on Swiss national television SRF. “It’s a signal that it’s not up to the state to have a say in pay.”

Switzerland is the home to at least five of Europe’s 20 best-paid chief executive officers. Opposition to excessive pay has stiffened among the traditionally pro-business Swiss following the government bailout of UBS AG (UBSN), Switzerland’s biggest bank, in 2008 and a plan — later scrapped — by Novartis AG (NOVN) to pay outgoing Chairman Daniel Vasella as much as $78 million.

In March, Swiss voters approved the so-called fat-cat initiative that gave company shareholders a binding vote on managers’ pay and blocked golden handshakes and severance packages.

While polls after that vote suggested the 1:12 initiative could pass, support waned, in part because of opposition by company executives, such as Roche Holding AG (ROG) CEO Severin Schwan and ABB Ltd. (ABBN) chief Ulrich Spiesshofer, who said it would crimp competitiveness and damage the economy.

‘Absurd’ Proposal

Speaking at a news conference in Bern yesterday, Economy Minister Johann Schneider-Ammann said the intended pay curbs were “absurd” and welcomed the voters decision. “We know there would have been lots of ways to circumvent the restrictions,” he said. “Switzerland stays attractive as a business location.”

The vote highlights discontent with managers in Europe, where unemployment soared to a record and banks have received taxpayer-funded bailouts.

“We’ve lost” for now, Young Socialist party leader David Roth, one of the initiators of the proposal, told SRF. “But we’ll continue to fight long term.”

Among the group’s initiatives is one for a national minimum wage. A date for the vote hasn’t been set.

Supporters of the 1:12 initiative said it only would have affected 0.3 percent of all 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 (GLEN) and Vitol SA.

Growing Discontent

Switzerland is the world’s second-most competitive country behind the U.S., according to an annual ranking published by IMD’s World Competitiveness Center. The Swiss also have the highest gross average monthly wage in Europe at about $7,766, the most recent UN data shows.

The measure would have been “a much stricter rule than in other countries,” said Robert Pozen, a senior lecturer on business administration at Harvard Business School. Pozen commented before the results were announced.

Reining in huge executive payouts has found appeal outside Switzerland. In Spain, the country’s Socialist party is proposing measures similar to the 1:12 imitative.

In Germany nearly three quarters would support such pay curbs, according to a poll by GfK commissioned by the newspaper Welt am Sonntag. German Chancellor Angela Merkel’s party bloc agreed in a coalition draft accord to tighter limits on executive pay, Bild am Sonntag reported yesterday.

Switzerland ranks higher in income equality than the average of 34 countries in the Organisation for Economic Co-operation and Development, according to OECD. The gap between the wealthiest 10 percent and the poorest is smaller than in Japan, the U.K., the U.S. and Canada, the OECD data showed.

Ballot initiatives are common in Swiss politics, on issues ranging from healthcare to European Union membership. At least 100,000 signatures are needed for an initiative to come up for a national vote. Most voters cast their ballots by mail.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net