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Switzerland restrains managerial remuneration
The Swiss voted overwhelmingly to include a provision in their constitution to, as the campaign stated, "stop the ripoff". The exact text (in German) can be found at <a href="http://www.abzockerinitiativeja.ch/eidgenossische-volksinitiative-gegen-die-abzockerei/" source="" author="">Eidgenössische Volksinitiative gegen die Abzockerei</a>. Rather than try to reformulate the result in a hyperbolic way, I'll perform the service of just translating the relatively clear amendment to the Swiss constitution. <h>The letter of the law</h> See the link above for the full text; I include the original German for the parts I think are most relevant to the discussion: <bq>3. Zum Schutz der Volkswirtschaft, des Privateigentums und der Aktionärinnen und Aktionäre sowie im Sinne einer nachhaltigen Unternehmensführung regelt das Gesetz die im In- oder Ausland kotierten Schweizer Aktiengesellschaften nach folgenden Grundsätzen: a. Die Generalversammlung stimmt jährlich über die Gesamtsumme aller Vergütungen (Geld und Wert der Sachleistungen) des Verwaltungsrates, der Geschäftsleitung und des Beirates ab. [...] b. Die Organmitglieder erhalten keine Abgangs- oder andere Entschädigung, keine Vergütung im Voraus, keine Prämie für Firmenkäufe und -verkäufe und keinen zusätzlichen Berater- oder Arbeitsvertrag von einer anderen Gesellschaft der Gruppe. [...] c. Die Statuten regeln die Höhe der Kredite, Darlehen und Renten an die Organmitglieder, deren Erfolgs- und Beteiligungspläne und deren Anzahl Mandate ausserhalb des Konzerns sowie die Dauer der Arbeitsverträge der Geschäftsleitungsmitglieder. d. Widerhandlung gegen die Bestimmungen nach den Buchstaben a-c wird mit Freiheitsstrafe bis zu drei Jahren und Geldstrafe bis zu sechs Jahresvergütungen bestraft.</bq> And, quickly---and mostly directly---translated to English: <bq>3. In order to protect the national economy, private property and shareholders as well as encouraging sustainable business management, the law for companies that are held publicly---Swiss or foreign---will be changed in the following ways: a. The general assembly will, on a yearly basis, determine the sum total of all remuneration (cash as well as in-kind transfers) for the board of directors, management and advisory board. [...] b. The board members will receive no compensation for either joining or leaving, no payments in advance, no bonus for acquiring or selling companies and will have no additional consulting or work agreements with other companies in the group. [...] c. The company rules will determine the size of any loans or other value-transfers to board members, the ways in which profit can be distributed and the total number of other board memberships allowed as well as the maximum service duration for board members. d. Contravention of the conclusions of a-c will be punished with up to 3 years in jail and up to six times the involved party's yearly board-member salary.</bq> <h>How will it play out?</h> <img attachment="resultat_ch-karte2.jpg" align="right" class="frame" caption="Swiss election results for the 'Abzocker-Initiative'">In other words: no more golden parachutes or absurd signing fees to attract "talent", either for board members or management. And, if they don't stick to the new rules, there's a possible jail sentence and hefty fine for all parties involved. The article <a href="http://www.marketwatch.com/story/the-swiss-lead-the-revolution-against-elites-2013-03-05" source="Market Watch" author="Darrell Delamaide">The Swiss (!) lead the revolution against elites</a> summed it up as follows, <bq>The measure gives shareholders a veto — a real veto, not a pretend one — over executive pay and bans signing bonuses, golden handshakes and golden parachutes. It applies to all of the country’s public companies, and violations are punishable by prison.</bq> This is a pretty good summary, although it applies to <i>all</i> companies that are incorporated in Switzerland. This would include companies like <i>TransOcean</i>---so recently famous for having done its share to ruin the Gulf of Mexico a few years back---which will have to play by these rules as well. As with all Swiss initiatives, the people have spoken, <i>however</i> it is now up to the parliament to integrate this into existing Swiss law. This sometimes proves to be anything other than simple, especially if it conflicts with other existing laws or treaties. Still, 68% of 49% of Switzerland agreed to go ahead with the restrictions. In canton Zürich---home to many businesses---70% agreed. See the <a href="http://www.abzockerinitiativeja.ch/volksinitiative-gegen-die-abzockerei-volksabstimmung-vom-3-marz-2013/" source="" author="">full results for a canton-by-canton breakdown</a>. <h>What about Europe?</h> Europe is hoping that the Swiss initiative triggers a wave. From the article cited above, <bq>In France, the liberal daily Libération had this front-page headline: “Cap on bosses’ salaries: Let us do like the Swiss.” [...] Rainer Brüderle, who is heading the election campaign for the Free Democrats, the junior partner in the current coalition, said Germany should emulate the Swiss pay curb and “set an example” for Europe.</bq> After Italy's recent elections, it's likely that people there would be quite receptive to such measures, to say nothing of even more depressed countries like Portugal, Spain and Greece. According to <a href="http://www.truthdig.com/report/item/swiss_curb_executive_greed_will_anyone_follow_20130305/" source="TruthDig" author="William Pfaff">Swiss Curb Executive Greed; Will Anyone Follow?</a> <bq>The [European Union’s ] Commission has ruled that all bankers and banking institutions anywhere within the EU, and also—here comes the knockout punch—all those executives working for EU-based banks worldwide, must have the bonuses they pay or receive capped at no more than existing annual salaries. This limit can be waived only if the bank’s shareholders agree, and then only to the level of double the executive’s current salary.</bq> Further, it seems that this draft law will be <iq>approved by finance ministers and the European Parliament</iq>, a move which is likely to tip Britain's hand on its continued membership in the EU. Will it stick with the Continent or would it rather continue to be a hyper-capitalist colony of the U.S.? The European Union, however, does not have the same direct-democracy referendum & initiative system as Switzerland so citizens there will have to keep up the pressure on their politicians instead. Despite the promising conclusions of the Commission cited above, considering the utter lack of success Europeans have had in dissuading their politicians from ruinous austerity policies, I would say: Good luck with capping executive pay. The same goes double (or triple) for any Americans gazing hopefully across the wide waters and dreaming of a more equitable future. <h>Possible fallout is minimal</h> Speaking of the typically American reaction, like clockwork, <iq>the Swiss business confederation warned that approval of the referendum would hurt the country’s investor-friendly reputation.</iq> Of course it said that. It's a lobbying firm; that's its job. This organization also said that all the rich people would abandon canton Zürich when tailored flat-rate taxes---previously available to "big fish" seeking domicile---were outlawed. A handful went, of course, but most stayed. Switzerland's preferred status has taken a tremendous beating of late anyway, with its kowtowing to the U.S. Treasury department in the UBS affair(s) and its recent signing of FATCA. At this point, sitting---as they are---on top of a reasonably functioning economy, the Swiss seem to be more concerned with chopping some of the bigger miscreants down to size than making themselves even more attractive to outside investors. Those are flocking to Switzerland's relatively safe harbor as it is; if there was ever a time to claw back some concessions on the equitable-pay front, it's now. <h>So, where to next?</h> With that in mind, the article <a href="http://www.juso.ch/de/node/601" source="JUSO Schweiz" author="">1:12 - Gemeinsam für gerechte Löhne</a> discusses a possible next step: the young socialist party of Switzerland is working on an initiative for <iq>1:12 -- working together for fair salaries</iq>. The crux of that amendment is straightforward: <bq>Der höchste von einem Unternehmen bezahlte Lohn darf nicht höher sein als das Zwölffache des tiefsten vom gleichen Unternehmen bezahlten Lohnes</bq> <bq>The highest salary paid by a company cannot be higher than twelve times the lowest salary in that same company.</bq> This would bring executive salaries in line with those in Japan, where the ratio was 1:16 in 2010.<fn> Given the enormous support for the recent initiative "against ripoffs", chances are certainly quite good that this next initiative goes through as well. <hr> <ft>See <a href="http://thinkprogress.org/politics/2010/07/08/106536/japanese-ceo-american-sixth/" source="ThinkProgress" author="Zaid Jilani">Average Japanese CEO Earns One-Sixth As Much As American CEOs</a> for more information</ft>