Gold plating the cuckoo clock
March 3, 2013 6:56 AM Subscribe
BBC: Some 70% of Swiss voters appear to have supported plans to give shareholders a veto on compensation and ban big payouts for new and departing managers, projected referendum results suggest. One of the organisers of the referendum, Brigitte Moser Harder, told the BBC she thought the Swiss people agreed with the proposals because the gap between rich and poor had become wider. "From the beginning, 2006, we had the support of the people of Switzerland because you know not everybody in Switzerland is rich."
DW: The "Minder Initiatve," named after Thomas Minder, the businessman who launched the petition, would allow basic salaries, bonuses, and so-called golden hellos and golden handshakes - paid when an executive joins or leaves a corporation - to come under public scrutiny.
Reuters: The clear majority was unusual given fierce opposition and intense campaigning by business lobby group Economiesuisse, which warned the proposals will damage the country's competitiveness and scare away international talent.
Bloomberg: At least five of Europe’s 20 highest-paid chief executive officers work for Swiss companies, according to data compiled by Bloomberg. Among them are the Credit Suisse Group AG CEO Brady Dougan, ABB Ltd. (ABBN)’s Joe Hogan and Joe Jimenez of Novartis AG. (NOVN) Roche Holding AG (ROG)’s chief Severin Schwan and Nestle SA (NESN)’s Paul Bulcke are also in the top tier.
Expatica: Among those in the spotlight have been Daniel Vasella, former head of pharmaceuticals giant Novartis, who made 15 million Swiss francs (12 million euros, $16 million) in 2011. Adding fuel to the fire was Vasella's planned 72 million Swiss franc golden parachute, to be paid out over six years, provided he did not go to work for the competition after stepping down this February.
DW: The "Minder Initiatve," named after Thomas Minder, the businessman who launched the petition, would allow basic salaries, bonuses, and so-called golden hellos and golden handshakes - paid when an executive joins or leaves a corporation - to come under public scrutiny.
Reuters: The clear majority was unusual given fierce opposition and intense campaigning by business lobby group Economiesuisse, which warned the proposals will damage the country's competitiveness and scare away international talent.
Bloomberg: At least five of Europe’s 20 highest-paid chief executive officers work for Swiss companies, according to data compiled by Bloomberg. Among them are the Credit Suisse Group AG CEO Brady Dougan, ABB Ltd. (ABBN)’s Joe Hogan and Joe Jimenez of Novartis AG. (NOVN) Roche Holding AG (ROG)’s chief Severin Schwan and Nestle SA (NESN)’s Paul Bulcke are also in the top tier.
Expatica: Among those in the spotlight have been Daniel Vasella, former head of pharmaceuticals giant Novartis, who made 15 million Swiss francs (12 million euros, $16 million) in 2011. Adding fuel to the fire was Vasella's planned 72 million Swiss franc golden parachute, to be paid out over six years, provided he did not go to work for the competition after stepping down this February.
I imagine that this law will last until one of those "Swiss" companies proposes "moving" its corporate headquarters to somewhere less hostile. Companies can move faster and with less trouble than Gerard Depardieu - and they don't even have to get on an airplane to do it.
Set against that, the banks can't easily replicate the banking secrecy laws.
posted by jaduncan at 8:17 AM on March 3, 2013 [3 favorites]
Set against that, the banks can't easily replicate the banking secrecy laws.
posted by jaduncan at 8:17 AM on March 3, 2013 [3 favorites]
I have sat through more shareholder votes on renumeration than I care to.
The system is broken and any attempt to repair it needs supporting.
posted by Mezentian at 8:26 AM on March 3, 2013
The system is broken and any attempt to repair it needs supporting.
posted by Mezentian at 8:26 AM on March 3, 2013
Three points keep coming to mind.
1. The "...business lobby group Economiesuisse, which warned the proposals will damage the country's competitiveness and scare away international talent" counter-argument is flawed as:
a) It's the same international "talent" that caused the 2008 crisis that the world has still not recovered from. Possibly never will.
b) So, if all of this "talent" goes abroad, then no-one with leadership and financial competence will apply for a job offering a mere million Euros or so? Yeah. Really.
2. If several, or many countries, enacted such laws at roughly the same time, then it would get interesting as to where the "talent" would go to.
3. With an industry of financial and tax advisors, how difficult would it be for people to get around these restrictions e.g. "We're sorry we couldn't give you a triple salary bonus this year due to the new laws; but hey, have this mansion overlooking Lake Geneva as a erm small Christmas gift from the company."
posted by Wordshore at 8:35 AM on March 3, 2013
1. The "...business lobby group Economiesuisse, which warned the proposals will damage the country's competitiveness and scare away international talent" counter-argument is flawed as:
a) It's the same international "talent" that caused the 2008 crisis that the world has still not recovered from. Possibly never will.
b) So, if all of this "talent" goes abroad, then no-one with leadership and financial competence will apply for a job offering a mere million Euros or so? Yeah. Really.
2. If several, or many countries, enacted such laws at roughly the same time, then it would get interesting as to where the "talent" would go to.
3. With an industry of financial and tax advisors, how difficult would it be for people to get around these restrictions e.g. "We're sorry we couldn't give you a triple salary bonus this year due to the new laws; but hey, have this mansion overlooking Lake Geneva as a erm small Christmas gift from the company."
posted by Wordshore at 8:35 AM on March 3, 2013
I imagine that this law will last until...
Nope. Switzerland is many things. Practical, yes, and economically liberal, yes.
But socially conservative and slightly xenophobic, as well. And rather egalitarian; or rather, the culture values equality even when it isn't equal. The president of one of the private banks here has two identical limousines, so as not to flaunt the fact that he has two limousines. And that's where the definitive Ja result for the Minder initiative came from. The idea that it's okay for (generally multinational) corporations to openly pay their (generally foreign) managers what are considered to be completely tasteless sums of money even for poor performance is anathema to this Swiss sense of "outward egalitarianism". Not often reported in the English-speaking press is Minder's statement on "anglo-saxon" capitalism, which I think sums up why this won so big, "There's a lot of bullshit coming from America. There's no sustainable feeling of how managers lead a company. It shouldn't be for the money, it shouldn't be personal gain — it should be for the customer." (Reuters article from a month ago, good background on the subject.)
Vasella getting 72 million francs as a noncompete bonus (in a company he already held a third of a billion in stock in, which one would think would be insurance enough), followed by his completely tone-deaf reply that it had come to his attention that it was not perceived that the bonus was deserved on returning it, was pretty much the nail in the coffin of the Nein campaign. There is some fear and fearmongering among the free-market types that corporate mobility post-Minder will hurt Switzerland in the international contest to attract multinationals. But even Economiesuisse didn't dare to release a bizarre, dystopian short film in support of the Nein cause, featuring images of rag-clad Swiss-German refugees being turned away from Germany at the Rhine after the partitioning of the country following its economic collapse due to corporate withdrawal, after it was obvious that Vasella wasn't going to drop out of the headlines immediately.
That said, 70% is a huge deal, and the third-higest result for an initiative ever, and that I think you can read as a popular indictment of the recent trend toward excessive compensation in multinational capitalism. Switzerland isn't alone in moving to restrict management autonomy in compensation matters, so while this will have a negative impact on Switzerland's reputation for corporate-friendliness, I'm not sure you'll see that many companies move out. Some may pay to take themselves private, so as to eliminate shareholder interference.
But there aren't that many places with stable government and banking systems and a predictable legal environment they can go to. So they'll just have to justify compensation packages to their shareholders, or spend some time in a Swiss jail. (But, as a journalist for the German magazine Stern recently found, Swiss jails are actually quite nice, so that's always an option.)
posted by Vetinari at 8:38 AM on March 3, 2013 [19 favorites]
Nope. Switzerland is many things. Practical, yes, and economically liberal, yes.
But socially conservative and slightly xenophobic, as well. And rather egalitarian; or rather, the culture values equality even when it isn't equal. The president of one of the private banks here has two identical limousines, so as not to flaunt the fact that he has two limousines. And that's where the definitive Ja result for the Minder initiative came from. The idea that it's okay for (generally multinational) corporations to openly pay their (generally foreign) managers what are considered to be completely tasteless sums of money even for poor performance is anathema to this Swiss sense of "outward egalitarianism". Not often reported in the English-speaking press is Minder's statement on "anglo-saxon" capitalism, which I think sums up why this won so big, "There's a lot of bullshit coming from America. There's no sustainable feeling of how managers lead a company. It shouldn't be for the money, it shouldn't be personal gain — it should be for the customer." (Reuters article from a month ago, good background on the subject.)
Vasella getting 72 million francs as a noncompete bonus (in a company he already held a third of a billion in stock in, which one would think would be insurance enough), followed by his completely tone-deaf reply that it had come to his attention that it was not perceived that the bonus was deserved on returning it, was pretty much the nail in the coffin of the Nein campaign. There is some fear and fearmongering among the free-market types that corporate mobility post-Minder will hurt Switzerland in the international contest to attract multinationals. But even Economiesuisse didn't dare to release a bizarre, dystopian short film in support of the Nein cause, featuring images of rag-clad Swiss-German refugees being turned away from Germany at the Rhine after the partitioning of the country following its economic collapse due to corporate withdrawal, after it was obvious that Vasella wasn't going to drop out of the headlines immediately.
That said, 70% is a huge deal, and the third-higest result for an initiative ever, and that I think you can read as a popular indictment of the recent trend toward excessive compensation in multinational capitalism. Switzerland isn't alone in moving to restrict management autonomy in compensation matters, so while this will have a negative impact on Switzerland's reputation for corporate-friendliness, I'm not sure you'll see that many companies move out. Some may pay to take themselves private, so as to eliminate shareholder interference.
But there aren't that many places with stable government and banking systems and a predictable legal environment they can go to. So they'll just have to justify compensation packages to their shareholders, or spend some time in a Swiss jail. (But, as a journalist for the German magazine Stern recently found, Swiss jails are actually quite nice, so that's always an option.)
posted by Vetinari at 8:38 AM on March 3, 2013 [19 favorites]
Imagine if this resulted in Swiss companies hiring better managerial tallent?
posted by jeffburdges at 9:03 AM on March 3, 2013
posted by jeffburdges at 9:03 AM on March 3, 2013
...With an industry of financial and tax advisors, how difficult would it be for people to get around these restrictions...
In general, there are way fewer silly lawyer games in civil law jurisdictions, because so much less of the law relies on judicial interpretation. Yes, there are loopholes, and they get exploited. And the legal framework supporting the initiative still needs to be built, and this will take a year or two. But the text of the new Section 3 of Article 95 of the Swiss Constitution [de.wikipedia.org] is pretty clear on these points:
As I understand it, if the authorities catch you, as a board, compensating your managers without annual approval of the total value by your shareholders, regardless of the class of compensation; or if you pay your managers for work they haven't done yet, a bonus on contract termination, a bonus for M&A activity, or you or another firm under your control give them a side contract, you get fined up to six years' salary as board member and/or spend three years in jail. You explicitly can't incorporate yourself to avoid this. Anything else you do that makes it look like you're trying to get around the restrictions therein will probably also get you thrown in jail.
posted by Vetinari at 9:32 AM on March 3, 2013 [6 favorites]
In general, there are way fewer silly lawyer games in civil law jurisdictions, because so much less of the law relies on judicial interpretation. Yes, there are loopholes, and they get exploited. And the legal framework supporting the initiative still needs to be built, and this will take a year or two. But the text of the new Section 3 of Article 95 of the Swiss Constitution [de.wikipedia.org] is pretty clear on these points:
As I understand it, if the authorities catch you, as a board, compensating your managers without annual approval of the total value by your shareholders, regardless of the class of compensation; or if you pay your managers for work they haven't done yet, a bonus on contract termination, a bonus for M&A activity, or you or another firm under your control give them a side contract, you get fined up to six years' salary as board member and/or spend three years in jail. You explicitly can't incorporate yourself to avoid this. Anything else you do that makes it look like you're trying to get around the restrictions therein will probably also get you thrown in jail.
posted by Vetinari at 9:32 AM on March 3, 2013 [6 favorites]
I mean this is good an all, but the vast majority of shareholders of the large Swiss multinationals are going to be non-Swiss, this should pass, and I hope it does, but I doubt other than extreme cases like Vasella its going to matter. Time and time again we've seen boards get support from their large shareholders, so I doubt this instance much will change.
Also almost certainly the highest paid employees at CS and UBS are not C-suite folks - and they won't be impacted by this.
I don't think its very likely any historically Swiss companies would consider reincorporation to get around this. Putting softer reasons aside you can't reincorporate without triggering taxable gains for most of your shareholders (most US companies that reincorporated their holding companies to Bermuda or (ironically) CH had one off-y situations where their shareholders were not going to show taxable gains on the reincorporation). For UBS and CS it would be very very difficult given their specific regulatory needs/demands/environment
posted by JPD at 1:34 PM on March 3, 2013
Also almost certainly the highest paid employees at CS and UBS are not C-suite folks - and they won't be impacted by this.
I don't think its very likely any historically Swiss companies would consider reincorporation to get around this. Putting softer reasons aside you can't reincorporate without triggering taxable gains for most of your shareholders (most US companies that reincorporated their holding companies to Bermuda or (ironically) CH had one off-y situations where their shareholders were not going to show taxable gains on the reincorporation). For UBS and CS it would be very very difficult given their specific regulatory needs/demands/environment
posted by JPD at 1:34 PM on March 3, 2013
it shouldn't be personal gain — it should be for the customer
That seems pretty naive... Over here in the US we do manage for the customer... Just not the customer at the other side of the cash register.
posted by spicynuts at 5:54 PM on March 3, 2013
That seems pretty naive... Over here in the US we do manage for the customer... Just not the customer at the other side of the cash register.
posted by spicynuts at 5:54 PM on March 3, 2013
In Australia the law recently changed to force a shareholder vote on executive pay.
The vote is non-binding, that is, it can be ignored by the board, but if the shareholders vote against the remuneration two years in a row the board is spilled and must be re-elected.
I thought similarly to JPD, that big end of town mates would ensure nothing ever came of this change, but instead, it is causing quite a commotion.
Board members find it humiliating to be dismissed from their positions and have to seek re-election, and when there are such spills there are often alternative candidates competing against them. All horrifying for the wood paneled walls and three-piece suit brigade that are used to these sinecures.
Even in circumstances where control is firmly in the hands of the board, News Corp, for example, there has been a distinct reining in of exec pay for fear of scoring too high a dissenting vote, even where it can never be enough to get a majority.
posted by bystander at 1:58 AM on March 4, 2013 [1 favorite]
The vote is non-binding, that is, it can be ignored by the board, but if the shareholders vote against the remuneration two years in a row the board is spilled and must be re-elected.
I thought similarly to JPD, that big end of town mates would ensure nothing ever came of this change, but instead, it is causing quite a commotion.
Board members find it humiliating to be dismissed from their positions and have to seek re-election, and when there are such spills there are often alternative candidates competing against them. All horrifying for the wood paneled walls and three-piece suit brigade that are used to these sinecures.
Even in circumstances where control is firmly in the hands of the board, News Corp, for example, there has been a distinct reining in of exec pay for fear of scoring too high a dissenting vote, even where it can never be enough to get a majority.
posted by bystander at 1:58 AM on March 4, 2013 [1 favorite]
It may put a brake on companies setting up in Switzerland for tax reasons.
But on the other hand, when I last went to a meeting at the head office of a major UK plc I worked for, which was based in Switzerland for tax reasons, the CEO and CFO were loving more than just the tax breaks. They had both swapped standard London commutes for a bike ride and a boat ride, respectively, to work. They looked tanned and fit, had lost weight, and spoke of how much they enjoyed being able to go off skiing in the winter and hiking in the summer. Switzerland had become a lifestyle choice for the individuals as much as a choice about minimising tax for the company.
posted by MuffinMan at 2:05 AM on March 4, 2013 [1 favorite]
But on the other hand, when I last went to a meeting at the head office of a major UK plc I worked for, which was based in Switzerland for tax reasons, the CEO and CFO were loving more than just the tax breaks. They had both swapped standard London commutes for a bike ride and a boat ride, respectively, to work. They looked tanned and fit, had lost weight, and spoke of how much they enjoyed being able to go off skiing in the winter and hiking in the summer. Switzerland had become a lifestyle choice for the individuals as much as a choice about minimising tax for the company.
posted by MuffinMan at 2:05 AM on March 4, 2013 [1 favorite]
bystander - even with the ludicrously low voting threshold on "say on pay" in AUS - 25%, only 9% of companies came in above that threshold.
posted by JPD at 7:04 AM on March 4, 2013
posted by JPD at 7:04 AM on March 4, 2013
Just learned Switzerland's minimum wage is $50k per year, btw.
posted by jeffburdges at 7:56 AM on March 4, 2013
posted by jeffburdges at 7:56 AM on March 4, 2013
only 9% of companies came in above that threshold.
Oh, I agree much more needs to be done to get some sanity back into exec pay, but similarly to the swiss laws, when this was mooted it was "the sky will fall!" FUD.
In my opinion, both laws are good starts to addressing the issue, and perfect is the enemy of the good.
posted by bystander at 12:16 PM on March 4, 2013
Oh, I agree much more needs to be done to get some sanity back into exec pay, but similarly to the swiss laws, when this was mooted it was "the sky will fall!" FUD.
In my opinion, both laws are good starts to addressing the issue, and perfect is the enemy of the good.
posted by bystander at 12:16 PM on March 4, 2013
« Older Email transparency at Stripe | What if Skynet just wanted to piss us off? Newer »
This thread has been archived and is closed to new comments
posted by three blind mice at 7:55 AM on March 3, 2013