CEO Pay: Why Even the Swiss Are Riled Up
Business + Economy

CEO Pay: Why Even the Swiss Are Riled Up


You don't typically think of the Swiss as rabble-rousers. They're clockmakers, compulsively neutral and value Switzerland's reputation as one of the most business friendly countries in the world, right? As it turns out, the Swiss are quite capable of being roused, and in this case the peanut butter in their Lindt chocolate is the matter of executive compensation.

On Nov. 24, the country will vote on a measure to restrict executive pay. If passed, it will be illegal in Switzerland for any business to pay an executive more than 12 times what it pays its lowest paid employee — hence the measure's nickname, the "1:12 initiative." Another way of thinking about the measure is, no Swiss CEO would be able to earn more in a month than the lowest paid employee earns in one year.

Related: Wider Wealth Disparity Between CEOs and Workers

Under Switzerland’s version of direct democracy, the 1:12 initiative, backed by the Young Socialist party, was able to get to the ballot after receiving 100,000 signatures from citizens. The vote follows another Swiss referendum to ban so-called "golden hellos" and "golden goodbyes," the respective practices of giving newly hired executives large bonuses — before they've even crafted their first corporate memo — and departing executives the same, sometimes after abysmal on-the-job performances. This referendum, known as the “fat cat” rule, was passed in March by an overwhelming 68 percent majority.

More than five years out from the start of the financial crisis, average citizens around the world are still smarting, while taking careful note of record profits for the big banks and other financial institutions that were at the root of so much trouble. The Swiss are as keenly aware of this as anyone else. Swiss superbank UBS had to be bailed out for the same sort of bad behavior that got banks like Bank of America and Citigroup into trouble.

The divide extends beyond banks, too. This past February, Swiss pharmaceutical giant Novartis' attempted $78 million golden goodbye for departing chairman Daniel Vasella elicited great shareholder anger. But just because the Swiss are up in arms about executive pay, does that mean American executives have to worry? There is an activist shareholder movement in the U.S., but there doesn't seem to be quite the kind of general discontent here that would drive lawmakers to draft executive pay legislation that would in turn drive voters to the polls. Implementation of the Wall Street Reform and Consumer Protection Act, a.k.a., Dodd-Frank, isn't even complete yet — more than three years after its passage. 

On the other hand, income inequality is less pronounced in Switzerland than it is in the U.S. and anger over stagnating wages and rising inequality continues to bubble up here. The New Yorker recently gave in-depth coverage to a panel discussion on inequality hosted by the left-leaning Center for American Progress. Findings showed that for most of the last 40 years income growth for the bottom 99 percent has been slow, while income growth for the top 1 percent has been very much on the rise. The SEC recently approved a plan that requires companies to calculate and disclose the ratio between the total compensation of their CEOs and the median compensation for other employees. And an Ohio Walmart store’s holiday food drive for employees set off a firestorm of criticism this week about what the superstore pays its employees.

Related: Some CEOs Are Still Cashing In at Our Expense

In the end, all this handwringing over the 1:12 initiative may be for naught anyway. It's looking less and less likely that the measure will pass. A recent poll suggests support for it has slipped considerably, due in part to fears that executive pay restrictions might drive businesses out of the country. But while there's no sign yet that any law, regulation or measure as radical as Switzerland's is coming to the U.S., with income inequality here at record levels, the American business community still might want to keep an eye on what happens there on Nov. 24.

Bellwethers can come in all shapes and sizes, and from all kinds of places, even compulsively neutral and seemingly unrousable ones like Switzerland.

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