When the credit crisis hit in 2008, much of the public’s ire fell on the Wall Street executives who earned enormous salaries as the financial system crumbled. Legislators and activists demanded that the country’s corporations revert to more reasonable pay packages, especially those companies who received government bailouts. Nearly five years later, however, little has been done to curb outsized executive compensation. Well, at least in the U.S.
Switzerland, on the other hand, recently voted for legislation that aims to put a cap on “fat cat” pay. More than 67 percent of voters approved an initiative that will allow a company’s shareholders to set executives’ salaries rather than the boardroom. The members who sit on the board of the world’s largest corporations are often intimately tied to the executives who run the day-to-day operations. This often leads to the excessive salaries and bonuses that set off Swiss voters’ anger. In fact, public opinion on this issue turned overwhelmingly negative when word leaked that the outgoing chairman of a Swiss pharmaceutical company would receive a severance package worth $77 million.
Although the company later tried to forgo the bonus, by that point the damage had already been done. Besides capping salaries, the legislation also promotes greater transparency by requiring companies to declare all loans made to executives. Opponents of the bill claimed that the harsher restrictions would discourage companies from doing business in Switzerland. As one of the major financial centers of Europe, however, the new regulations aren’t likely to disrupt the business culture of Switzerland that much. Still, the long-term effects of the law will be of great interest to the U.S., which might use it as a model for fighting overzealous executive pay in the future.
Questions:
- Should stockholders or boards set executive pay in corporations?
- Should executive pay be tied to company performance?
Source: Patrick Winters and Eva von Schaper, “Swiss Voters Get Their Say on Executive Pay,” Bloomberg BusinessWeek, February 21, 2013; Frank Jordans, “Swiss Voters Approve ‘Rip-Off Initiative’ Putting Tough Limits on Executive Pay,” Associated Press, March 3, 2013. Photo courtesy of Marco Kalmann.