On Sunday 68% of Swiss voters and all of Switzerland’s 26 cantons approved the Popular Initiative Against Abusive Executive Compensation. The most important points of this initiative are a ban on members of the board of directors or the executive board receiving certain payments, such as „golden handshakes“ or „golden parachutes“ at the point of recruitment or severance. Furthermore, managers won’t receive any bonuses for buying or selling corporations. At annual shareholder meetings, shareholders in companies with headquarters in Switzerland will have a binding vote over the pay of directors and the executive board.
Of course these new regulations for listed companies have drawn a lot of opposition from the country’s business community, especially from the Swiss Business Federation. It was the most outspoken opponent of the initiative and invested 8m Swiss francs in the campaign to prevent voters approving the initiative. It warned that if the measure were to be passed, it would damage competitiveness in Switzerland and endanger jobs and that companies would leave the country. But these arguments did not sway the voters. What’s more, multinationals such as ABB, Nestlé, Roche, Schindler, Zurich insurance and others denied clearly in public that this would be a reason to leave Switzerland.
Excessive executive compensation is also being discussed in the European Union. Different proposals are taking shape. The EU agreed in principle last week to impose a strict limit on executive bonuses for banks. It would limit bonuses to the level of the employee’s base salary, or double that if shareholders agreed by a two-third majority. Those bonus rules would also be valid for branches of foreign companies within the EU.
The EU also wants to introduce a financial transaction tax for shares and bonds. In this way, the banks could pay back their share of the bailout costs incurred by states when the global financial and economic crisis started in 2008. One reason for this crisis was the fact that the higher the profit achieved, the higher the bonus. Of course this was not achieved without a lot of risk taking. Many of the countries affected are today laden with an astronomical amount of debt. Social and economic problems have become severe as unemployment reaches extremely high rates, especially for young people. Demonstrations by people in countries across the European Union are a clear sign that ordinary citizens are suffering the most. The approval of the initiative against abusive executive compensation by the Swiss people is a clear sign for other countries to take people’s outrage over these vast, unjustified payouts seriously.
The biggest Swiss bank, UBS, lost billions in the sub-prime crisis. The state had to bail out the bank. Nevertheless managers at the bank got away with millions in severance payments. That’s the reason for our outrage.
Now politicians have to take swift actions to implement the initiative. The Swiss government must create a provisional regulation by 3 March 2014, if parliament doesn’t implement it within a year.