The Edge

Richard Northedge takes on corporate finance

The Swiss speak: control executive pay

Swiss bankers who thought they had escaped the EU cap on pay need to think again. Switzerland’s citizens have imposed their own ban. The Gnomes of Zurich will just have to join the flight to Asia and America.

Days after the European Union said bankers’ bonuses shouldn’t exceed their basic pay, a Swiss referendum has voted for controls on not only bankers’ pay but all directors’ rewards.  It shows that the contempt for executive remuneration extends from Brussels bureaucrats to ordinary voters.

In fact, a third of the Switzerland’s five-million electorate voted for controls on executive pay and 15 per cent opposed, but a two-thirds majority is a clear comment, even if the Swiss hold referendums at the drop of a hat. There have been polls on banning the building of minarets, using aviation taxes for aviation purposes, allowing animals to be represented in court by lawyers, and to erecting ‘sex boxes’ in Zurich for prostitutes (with parking). By comparison, constraining boardroom pay seems sensible.

The Swiss might have voted differently had they not just been provoked by their biggest pharmaceuticals company. Shortly before the referendum, Novartis agreed to its departing chairman £50m if he didn’t compete with it for six years. However, the fact that Daniel Vasella and Novartis backed off under shareholder opposition could be evidence that it doesn’t need a public vote to restrain pay.

But just as the EU will allow bankers to receive bonuses of twice their basic pay if shareholders agree, the Swiss vote leaves it to investors to veto directors’ proposals. The Swiss have approved an annual vote on companies’ total executive and board pay, annual board elections, and articles that set out the rewards structure – but that is good governance practice in many major companies already. A ban on severance pay may be trickier, but let’s see how the wily Swiss evade that.

The message from the referendum is that business bashing is still popular with the lynch mob. Give them a chance to be spiteful and they will take it – even when the Swiss government opposed the referendum.



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