Swiss citizens voted yesterday (3 March) to impose some of the world's strictest controls on executive pay, forcing public companies to give shareholders a binding vote on compensation.
The government said 67.9% of voters had backed allowing shareholders to veto executive pay proposals as well as banning big rewards for new and departing managers, one of the highest approval rates ever for a popular initiative.
While anger at generous payouts for executives has spread around the globe since the financial crisis, Swiss direct democracy - including four national referendums a year - means public outrage can be translated into strong action.
Brussels agreed a cap on bankers' bonuses last week and countries including the United States and Germany have introduced advisory "say on pay" votes. Britain also wants to give shareholders a binding vote on pay and "exit payments" at least every three years, but the Swiss plans go further.
The clear majority in pro-business Switzerland was unusual given fierce campaigning by corporate lobby group Economiesuisse, which warned the proposals would damage the country's competitiveness and scare away international talent.
Support for the move was driven partly by big bonuses blamed for fuelling risky investments that nearly felled Swiss bank UBS, as well as outrage over a proposed €60 million payment to outgoing Novartis chairman Daniel Vasella.
"The clear support for the initiative reflects the understandable anger of the electorate at the self-serving mentality of certain managers," said a group representing most of the parties in parliament which opposed the plan. "With their misconduct, they have done the economy as a whole a disservice."
Thomas Minder, the businessman-turned-politician behind the campaign who says his proposals are aimed at ending a culture of short-termism and rewards for managers of badly-run companies, said intense corporate lobbying had backfired.
"This is a clear sign of the distance between the people and the political and business establishment," he said.
Despite threats from some executives, Switzerland is unlikely to see an exodus of big companies, drawn to the country by low taxes, stable politics and business-friendly laws.
New ways to reward executives?
Companies will likely seek ways around the new rules to reward executives, just as banks in Europe are looking to soften the impact of a cap on bonuses for top staff agreed by European lawmakers last week.
"If a company wants to pay a top executive 25 million, then they will find a way to do so regardless of the initiative," Rolf Soiron, chairman of cement maker Holcim and drugs industry supplier Lonza, told Reuters before the vote.
Experts also question whether shareholders in Swiss companies will make full use of their new rights.
Of the top 100 Swiss companies, 49 already give shareholders a non-binding vote on the pay of executives. But while opposition to pay deals is on the rise, a majority of investors have never voted them down.
Justice Minister Simonetta Sommaruga said implementing the proposals would be challenging, but said Switzerland would remain an attractive location for business, due to its educated population, quality of life, security and political and economic stability. "I am sure the economy can cope with this."
Swiss companies employed five of the top 10 best-paid chairmen in Europe in 2011, but only the heads of Novartis and Roche made it into the continent's top 10 for chief executives as under-fire big banks UBS and Credit Suisse reigned in pay.
Minder's initiative forces binding votes on compensation every year as well as on board composition and would also ban bonus payments to managers if their companies are taken over.
The plan also includes possible jail sentences and fines for breaching the new rules.
While Switzerland has fared relatively well through the financial crisis, the government bailout of flagship bank UBS in 2008 stoked anger among Swiss who blamed its heavy losses on hefty rewards for bankers who made risky bets.
Chairperson of Democracy International, network promoting direct democracy, Gerald Häfner commented:
“Yesterday’s result is a strong signal to implement direct democracy in any country of the world as it has given the power to the people to correct economic injustice. The world would be better if citizens had the right to vote directly on economic issues that allow to get the world of finance under control.”