On Sunday, 68% voted in favor of giving binding control over executive pay to Swiss shareholders. This would allow shareholders to vote on the compensation given to board members and corporate executives for any company listed in Switzerland. The initiative would also pose limitations to signing bonuses, severance packages, side contracts, and rewards for buying or selling companies.
Discontent over exorbitant executive salaries has been growing. Last month, public outcry prevented pharmaceutical company Novartis from giving its chairman $76 million for an exit package. Outrage over UBS’ hefty losses in 2008 along with its large bonuses also contributed to the plan, which was spearheaded by Thomas Minder, the head of a Swiss company Schaffhausen. Minder’s stated that his goal was not to reduce salaries, but wanted shareholders to take responsibility for remuneration. It is unclear when the plan will actually be implemented.
Although this would close the tremendous compensation gap between top executives and average workers, there could be drawbacks as well. Many doubt the effectiveness of the policy and believe that companies will just find creative ways of compensating executives, rather than reduce their salaries. This initiative could potentially prevent international talent from taking executive positions in Swiss companies. Opponents also argue that it could damage the country’s competitiveness and that Switzerland may no longer be as an attractive region to locate companies.
Will this initiative prevent large companies, such as UBS, from taking huge risks? Executives may possibly implements more risk control measurements to prevent trading losses in an effort to save their own salaries.