The Great Debate

Swiss outrage over executive pay sparks a movement in Europe

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.

Prepare for changes in executive compensation practices

Patrick R. Dailey–  Patrick R. Dailey is a human resources executive and specialist in executive compensation. The views expressed are his own. –

The Obama administration is moving aggressively to reform executive compensation practices and impose more stringent governance regulations. These policy and regulatory initiatives are a result of the administration’s publicly stated beliefs that the global financial crisis of 2008 was in large part a result of executive compensation programs that were too highly-leveraged and short term, thus providing incentive for operating executives to engage in excessive risk taking – the corporate version of always swinging for the fences.

Without question, all public corporations will soon implement more stringent regulations and practices governing executive compensation.

Executive pay caps: “stealth nationalization” or “political grandstanding”?

obama-geithner President Barack Obama set a $500,000 annual pay cap on Wednesday for executives at companies getting taxpayer bailouts as part of a wider process to clamp down on excessive corporate pay.

The new rules would require banks and other companies that get government funds in the future to abide by the new cap going forward, with any additional compensation being limited to restricted stock that does not vest until government funds are paid back.

The following are comments from the market on the new plan. Add your own view in the comments section.

Is the executive pay bubble popping?

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

Signs are it won’t just be the salaries of bankers coming under fire.

An unusual array of forces are combining to make it very likely that top tier pay may be structurally falling, rather than simply taking a cyclical dip during a downturn.

Take it for granted that pay in the financial sector will fall. A combination of increased government ownership and a shrinking businesses taking fewer risks with other people’s money will see to that.