Swiss overwhelmingly vote for Executive Pay Curb

[Grisu]

Yesterday a popular initiative was voted on in Switzerland that aimed to curb the boni,pay, etc. that can be paid for Executives of Companies

ZURICH—Swiss voters on Sunday overwhelmingly backed a plan giving shareholders sweeping authority over executive pay, the latest in a series of moves aimed at curbing what is seen as excessive remuneration levels at top companies.

Roughly 68% of those who voted supported the Minder Initiative, named after the businessman and politician who created it, according to the government. The 24-item measure enables shareholders of Swiss companies to approve or block proposed compensation for corporate executives and board members.

Full article

Eidgenössische Volksinitiative 'gegen die Abzockerei'

I

Die Bundesverfassung vom 18. April 19991 wird wie folgt geändert:

Art. 95 Abs. 3 (neu)

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. Sie wählt jährlich die Verwaltungsratspräsidentin oder den Verwaltungsratspräsidenten und einzeln die Mitglieder des Verwaltungsrates und des Vergütungsausschusses sowie die unabhängige Stimmrechtsvertreterin oder den unabhängigen Stimmrechtsvertreter. Die Pensionskassen stimmen im Interesse ihrer Versicherten ab und legen offen, wie sie gestimmt haben. Die Aktionärinnen und Aktionäre können elektronisch fernabstimmen; die Organ- und Depotstimmrechtsvertretung ist untersagt.

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. Die Führung der Gesellschaft kann nicht an eine juristische Person delegiert werden.

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.

I'm sorry, couldn't find it in english

The result was not unexpected, though it wasn't expected to be this clear. Daniel Vasella's (retiring CEO of Novartis) 'retiring bonus' of over 70M that was announced only two weeks in advance of the vote might have had some effect

In any case, what do you think? Would you welcome something similar in your country? Why/Why not?

 

[luiz]

Please explain to a non-German speaker how that's different from the current system, where the board of shareholders determines CEO pay. Will there be a direct vote?

I broadly agree of the measure.

 

[Grisu]

Please explain to a non-German speaker how that's different from the current system, where the board of shareholders determines CEO pay. Will there be a direct vote?

I broadly agree of the measure.

that's pretty much part of article a:

the shareholders determine the total sum of all these boni/etc in advance at the yearly general assembly for CEO/board/etc. depot and organ votes are forbidden. pensions funds have to show to their insured how they voted. the president of the board is elected yearly

 

[peter grimes]

I can't wait to watch business flee this government tyranny

Selfishly I really want to hear what US Republicans have to say about this - and how they'll react when Swiss businesses get along just fine with these new rules in place.

 

[GoodSarmatian]

Where are they going to flee from Switzerland ?

 

[Phrossack]

Where are they going to flee from Switzerland ?

The Caribbean?

 

[Terxpahseyton]

Direct democracy strikes again!

 

[TheLastOne36]

Where are they going to flee from Switzerland ?

Vanuatu?

 

[innonimatu]

Direct democracy strikes again!

And I'd like to see what the opponents of direct democracy (who came up on that other thread...) will say about this!

It should be noted that the representative portion of swiss democracy, the current elected government, opposed this.

 

[GhostWriter16]

I initially thought they wanted to cut pay for the executive branch of their government. I was disappointed.

Oh well.

I'm not really sure what changed here...

 

[Joecoolyo]

And I'd like to see what the opponents of direct democracy (who came up on that other thread...) will say about this!

Will the money not spent on salaries go towards building minarets?

*ducks for cover*

 

[Arwon]

Please explain to a non-German speaker how that's different from the current system, where the board of shareholders determines CEO pay. Will there be a direct vote?

I broadly agree of the measure.

I know different countries have quite different rules about the rights of shareholders (things like voting, reporting and meeting rules), presumably they've expanded those rights in some arcane but important way.

 

[luiz]

I'm still unsure what the big change will be, though. And while I read about this on some other sources and they all called it an effort to curb executive pay, truth is there is no curbing going here. They are probably increasing the power of minority shareholders, which is a good thing. But there's no guarantee whatsoever this will result in lower executive pay.

I did read elsewhere that part of this bill also banned golden parachutes; if that's the case then it's stupid. Golden parachutes are an useful tool to circumvent part of the principal-agent problem; contrary to popular belief they were not invented to reward incompetence but rather to discourage top executives of entrenching themselves too deep in the organization against the interest of shareholders.

 

[Terxpahseyton]

*ducks for cover*

better stay there
and interesting POV luiz

 

[ace99]

I don't know if Switzerland needs this or has the political donation problem we do but what was suggested here is the: Shareholder Protection Act, which would require that shareholders voted before any company made political donations to a particular candidate or political cause.

 

[Grisu]

And I'd like to see what the opponents of direct democracy (who came up on that other thread...) will say about this!

though to be fair, one result doesn't prove that direct democracy works, just as one certain other result doesn't mean that it failed...

It should be noted that the representative portion of swiss democracy, the current elected government, opposed this.

true that, IIRC about 110 : 90 Funny thing being is that Minder is a right winger. He's an independent but attached to the right-wing fraction of the SVP in parliament....bit in parliament basically only the left voted for the initiative.

I initially thought they wanted to cut pay for the executive branch of their government. I was disappointed.

a federal councilior (the highest executive office in switzerland) earns roughly 400k per year....I'd say that's hardly excessive when you look at what they'd earn in the private industry.

I'm still unsure what the big change will be, though. And while I read about this on some other sources and they all called it an effort to curb executive pay, truth is there is no curbing going here. They are probably increasing the power of minority shareholders, which is a good thing. But there's no guarantee whatsoever this will result in lower executive pay.

You and everybody else What was voted on was just the initiative, basically an order to parliament to make it so. Parliament is now charged with turning it into an effective law. So the exact extent of it will have to be seen.

I did read elsewhere that part of this bill also banned golden parachutes; if that's the case then it's stupid. Golden parachutes are an useful tool to circumvent part of the principal-agent problem; contrary to popular belief they were not invented to reward incompetence but rather to discourage top executives of entrenching themselves too deep in the organization against the interest of shareholders.

Yes Golden Parachutes are banned:

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. Die Führung der Gesellschaft kann nicht an eine juristische Person delegiert werden.

the members of the board (?) will get no quitting or or compensation. No compensation in advance, no premium for buying or selling companies and no additional consulting contract at another sub-firm. The leading of the company can not be delegated to a corporate body

I don't quite understand what you meant. How are golden parachutes going to prevent this? I imagine there are good reasons for them, but in the near past this has been abused too many times, the latest case being Vasella, getting 70M over 6 years...this made a lot of people quite angry (especially when in other cases lay-offs happened at the same time).

 

[Zelig]

I don't know if Switzerland needs this or has the political donation problem we do but what was suggested here is the: Shareholder Protection Act, which would require that shareholders voted before any company made political donations to a particular candidate or political cause.

Or just ban companies from making political donations, that seems much more reasonable and straightforward.

 

[luiz]

I don't quite understand what you meant. How are golden parachutes going to prevent this? I imagine there are good reasons for them, but in the near past this has been abused too many times, the latest case being Vasella, getting 70M over 6 years...this made a lot of people quite angry (especially when in other cases lay-offs happened at the same time).

Golden parachutes were invented because shareholders realized that if CEOs are too concerned about losing their job, they might act in a way contrary to shareholder interest.

Think of company receiving some buyout proposals from other companies. If there is no golden parachute agreement, the CEO of the company to be bought will likely lose his job, and so he has an incentive to behave in a way to either make the company unattractive to buyers or kill any negotiations going on (using backroom maneuvering, of course). But the shareholders would love to hear the proposals! They don't want to kill those negotiations. They want a CEO who is perfectly comfortable with the prospect of making himself redundant.

The above is just an example. Now of course this sort of agreement can be abused, but scrapping it altogether seems dumb to me. Golden parachutes were invented by shareholders, not CEOs; that's something to remember. And if shareholders don't want this agreement it's up to them not propose it. Banning it entirely limits the tools at the shareholders' disposal to manage their company. So it doesn't empower them in the slightest and is just populist posturing.

 

[ace99]

Or just ban companies from making political donations, that seems much more reasonable and straightforward.

Citizens United. Corporations are people my friend with free speech rights. And money is speech. So you can't ban political donations.

 

[Cutlass]

Golden parachutes were invented because shareholders realized that if CEOs are too concerned about losing their job, they might act in a way contrary to shareholder interest.

Think of company receiving some buyout proposals from other companies. If there is no golden parachute agreement, the CEO of the company to be bought will likely lose his job, and so he has an incentive to behave in a way to either make the company unattractive to buyers or kill any negotiations going on (using backroom maneuvering, of course). But the shareholders would love to hear the proposals! They don't want to kill those negotiations. They want a CEO who is perfectly comfortable with the prospect of making himself redundant.

The above is just an example. Now of course this sort of agreement can be abused, but scrapping it altogether seems dumb to me. Golden parachutes were invented by shareholders, not CEOs; that's something to remember. And if shareholders don't want this agreement it's up to them not propose it. Banning it entirely limits the tools at the shareholders' disposal to manage their company. So it doesn't empower them in the slightest and is just populist posturing.

The flipside of that is that it could make an executive unconcerned about losing their job in other circumstances. Such as if a CEO was enriching himself at the expense of the stockholders, then even firing the guy works to his advantage because he has to be bought out to do so.