Swiss outrage over executive pay sparks a movement in Europe

By Peter Gumbel
November 15, 2013

Here’s an idea for how to end corporate greed and reverse the trend of growing income inequality worldwide: impose a new rule that would limit the pay of top executives to just 12 times that of the lowest-paid employees at the same firm. In other words, prevent CEOs from earning more in one month than the lowliest shop-floor worker earns in a year.

This proposal might sound like something cooked up by Occupy Wall Street or another radical protest movement, but in fact it comes from the heartland of a nation not usually known for its disdain of money-making: Switzerland. On Nov. 24, the Swiss will vote in a referendum on whether to enshrine the 1:12 pay ratio — in their national constitution, no less.

The initiative is backed by an assortment of mainstream political groups, including the Social Democratic Party and the Greens, who argue that CEO pay in Switzerland has gotten out of control and needs to be reined in. They quote a raft of figures to show that the ratio of top to bottom earners in Swiss firms has grown from about 1 to 6 in 1984, to 1 to 43 today. And that’s just the average. In some companies, especially banks, the gap is much wider, with top executives such as Brady Dougan, the American CEO of Credit Suisse, and Andrea Orcel, head of investment banking at UBS, earning hundreds of times as much as their juniors.

The campaign’s backers consider salary inequality to be a social injustice. A video cartoon made by the Social Democrats features a Swiss nurse who is astounded by the way top manager salaries have grown to “astronomical” proportions, even as hers has barely increased. Regula Rytz, a co-head of the Greens, says that a constitutional amendment is necessary because neither the government nor business has “a recipe against the self-service mentality in corporate suites.”

Swiss business, meanwhile, has made a so-far successful effort to sway public opinion. A month ago, public opinion for and against the initiative was split at about 44 percent. Swiss business launched a public relations campaign, warning that the measure would spark an exodus of corporations. Employers’ associations commissioned studies that predicted lost jobs and higher taxes if the measure is passed. The latest polls this week suggest that the measure is unlikely to be approved, with just over 50 percent opposing it.

Even so, the issue isn’t likely to go away, and is gaining traction beyond Switzerland. Kristina Schüpbach, leader of the youth wing of the Social Democrats and one of the campaign initiators, says that “the main thing this time is to get a result that sends a strong signal” — to business and government. Significantly, the 1:12 campaign has made inroads in Spain, where the opposition Social Democrats have just adopted it as official policy. Schüpbach says the idea of setting a ceiling on pay ratios is also being discussed within the opposition Social Democratic Party in Germany. And more broadly, the issue of executive pay has become a red-hot political topic in France and elsewhere on the continent.

Bruce Kogut, director of the Sanford C. Bernstein Center for Leadership and Ethics at Columbia Business School, says the issue resonates in Europe “because people care more about equity” than they do in the U.S. But he also sees salary caps as a reaction to the pain of the financial crisis. “There have not been major consequences. Collective expiation of guilt and responsibility is lacking,” Kogut says.

Switzerland, with its history of Calvinism and the Protestant work ethic, is particularly fertile ground for this issue. The nation has lived through a series of corporate calamities in the past decade, including the collapse of Swissair in 2001 after it racked up an unmanageable level of debt. One of the most shocking blows to many Swiss was the state rescue of UBS in 2008, after the bank incurred giant losses from its foray into American mortgage-backed securities and other derivatives.

Huge payouts to executives at struggling companies have added fuel to the flames. The referendum campaigners point out that last year, UBS paid out a total of 2.5 billion Swiss francs in bonuses, at the same time as it reported a 2.5 billion franc loss. Pro-reform activists have calculated that it would take an ordinary bank employee as much as 385 years to earn the 18.5 million franc ($20 million) compensation package given to Orcel, the investment bank head, when he joined UBS from Merrill Lynch last year. (UBS has defended the package, claiming that it compensates Orcel for a loss of deferred pay when he left Merrill Lynch. The total bonus pool, the bank says, was paid out to a range of employees and not just top management.)

Orcel was already at UBS last March, when in a previous referendum, the Swiss approved an initiative that gives shareholders of listed Swiss companies a binding say in the compensation paid to their directors. It also sharply curtailed “golden handshakes” and other special bonuses.

Still, imposing caps on pay ratios turns out to be quite a bit harder than it sounds. Coming up with reliable statistics is a particular challenge. Publicly-traded companies in America and in many European countries are required to disclose the salaries and benefits paid to their CEO and other top executives. But obtaining data for the lowest-paid workers is much harder. Some Swiss opponents of the referendum question the accuracy of the figures issued by the campaign initiators.

The U.S. is an example of how difficult and politically fraught such an exercise can be. Three years ago, under section 953(b) of the Dodd-Frank Act, Congress ordered public companies to disclose the ratio of CEO pay to the annual median compensation of employees. So far, however, this stipulation has not been enforced, and the HR Policy Association’s Center on Executive Compensation, for one, believes the enforcement is “not worth the cost” to companies.

Supporters of income equality would argue that in the United States, even more so than Switzerland, such an investment is worthwhile. The Economic Policy Institute calculates that the CEO-to-worker compensation ratio in the top 350 largest U.S. firms is 231:1, including realized stock options. That’s more than five times the gap in Switzerland. According to the institute, CEO compensation grew by more than 725 percent between 1978 and 2011, at a time when the annual compensation of a typical private-sector worker grew by just 5.7 percent.

In both the U.S. and Switzerland, the public debate over pay ratios is just getting started. Schüpbach, the organizer of the Swiss initiative, says that even if the referendum doesn’t produce a majority vote in favor of the measure on majority on Nov. 24, the campaign will continue. “There’ll be a second, third or fourth attempt,” she says.

It remains to be seen whether even these renewed efforts will put a brake on runaway executive pay. But at the least, they put business on the defensive to justify huge packages.

PHOTO: A combination picture shows ’1:12′ flags adorning various houses in Bern and Zurich in November 2013. REUTERS/Staff


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I am sceptical in regards of the number – but not the idea itself.
What number would you suggest? As we see within the last 5+ years, the market can’t solve the problem.

Whatever is the outcome, it may have profound consequences in OECD countries.

Posted by OUTPOST2012.NET | Report as abusive

Thanks for asking. I wouldn’t suggest any number at all. However, I agree with all those who claim that the system is currently flawed. In my opinion the problem lies within the relationship between the managers (including BoD’s) and the shareholders. I think that the shareholders have failed to look after their interests in the past decades. Because the shares of a company are nowadays mainly owned by other companies and pension funds. That leads to a “big money industry” that has a huge conflict of interests and therefore covers itself. In my opinion, we have to start here.
Just recently, the Swiss voted yes on an initiative that aims to strengthen the rights (and the duties) of shareholders (google “minder initiative” or “against rip-off-salaries”). I think that is a good approach. Killing capitalism is not.

Posted by jaegerpe | Report as abusive

Should be a law limiting ANYONE on this planet from having more than a certain amount of money — because over a certain amount is hoarding the resources of the planet – to the detriment of others.

A man’s labour is a resource, and NO ONE should have the freedom to keep taking, taking, taking, while others go without, go without, go without.

Posted by BunchOfLiars | Report as abusive

The payment overall should be normalised. The Swizz certainly is a great country all in all. One problem i see is that the people with these gross salaries usually are in power and would sooner move their business elsewhere than risk loosing their insane salary and/or bonuses.

Theres a Swedish company owner, perhaps you’ve heard of minecraft? the game was a huge success and where there is success.. money is sure to follow, but instead of hoarding it to himself, he distributed it to everyone in the company, those that had contributed the most to the project got the most money.

The problem as always is greed, there is no way you can justify someone earning fifty… a hundred or even two hundred times plus than anyone else. if people set examples and shared rightfully to everyone who contributes, this law wouldn’t have to even exist.

Posted by Lyrion | Report as abusive

This is a really stupid idea. It is not going to help low skill workers and will hurt high income people, leading them to move production out of Switzerland. Like all of Marx’s ideas, they sound good until implemented, when they result in a more or less universal poverty.

Posted by zotdoc | Report as abusive

The Marx’s idea was a society without any currency.
A society without any state. That was/is called communism.
The idea fo communism had never been implemented.
What many people call “communism” had nothing to do with Marx.
Marx’s ideas can be compared – with the Start Trek economy.

Posted by OUTPOST2012.NET | Report as abusive

Its nothing but a bunch of people that are jealous of what other people have. They didnt work their asses off to be as sucessful, so they have to protest out of jealousy. Nothing more. If you want something, work hard and get it.

Posted by Necrosaro420 | Report as abusive

Whether it be 1381 in England or 1917 in Russia, society corrects perceived wealth aberrations all by itself; without need for laws.

Posted by user4301 | Report as abusive

It’s very good point; I must admit.
However, human society evolves.
We all would love to see the trend of perceived wealth aberrations being corrected in the States.

Societal life has been changing. More people get educated; attitudes towards definitions “fair” – “unfair”; the need of economy in work force decreases.

I would be happy to deliver a good news to the adepts of “laissez faire.” But I have none. Sorry.

Posted by OUTPOST2012.NET | Report as abusive

“They didn’t work their asses off to be as sucessful” — The top-earning CEO’s did not work 400x, or 100x, or even 50x harder than the guy at the bottom. Most low- and middle-wage workers actually work harder, with fewer benefits. The problem is how we value various types of work. In my mind (and the mind of many), the work of a CEO or even middle-manager is not nearly as valuable as the work product of people at the bottom who are actually DOING the physical work. Sure, being able to supervise a gang of differently-skilled workers, and coach them into better team productivity is worth *something* — but not worth as much as most of them are being paid.

Posted by knitterman | Report as abusive

The lowest paid workers everywhere are the ones “working their asses off”, especially those in developing nations with no option but to be exploited for crumbs just to survive. No ass is worth $10 million a year. There would be many many competent managers willing and able to perform the same task willing for a fraction of what top CEO’s are paid, if the recruitment process was a fair, transparent, merit-based, equal opportunity. Impose a ratio limit that is commensurate to the burden of responsibility, level of education and experience required of top managers. Grossly disproportionate salaries are greedy, unfair and exploitative of a system lacking in the regulation needed to rein in people when financial power goes to their heads, as it does.

Posted by KwaSandra | Report as abusive

it seems that most people agree with this idea but the question is what the ratio should be. This can be answered with an annual referendum so voters can annually democratically adjust their CEO’s salary.

also there are capitalist voices on here who speak of the economy as if it were some kind of god!??

Posted by vt-05 | Report as abusive

If this passed, would they (the corporations) not simply hide additional CEO and executive compensation in the form of bonuses?

Posted by Groth1175 | Report as abusive