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Swiss vote for pay reform of company Execs. What practical impact will it have?


Sync

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Swiss vote for corporate pay curbs - FT.com

Swiss vote to cap pay of top company executives - The Irish Times - Mon, Mar 04, 2013

Executive life in Switzerland will soon be less lucrative after more than two-thirds of Swiss voted yesterday in favour of capping pay at listed companies.

Some 68 per cent backed the so-called “rip-off initiative” in a referendum, giving shareholders a veto over salaries of managers and board members. New provisions, to be anchored in the Swiss constitution, will outlaw golden handshakes for arriving and departing managers, plus bonus payments for executives involved in mergers and acquisitions.
Now this is a good thing. I believe shareholders should have an active role in voting for the pay levels of execs, and that re-electing directors on an annual basis is the correct position to be in.

But what will this actually mean?


  • Golden Hellos are now illegal. So, I'm a US candidate that Nestlé want to hire on a 5 year contract. Prior to this vote they would have paid me $100k up front along with $100k per year. Nestlé still want to hire me. I still expect my $100k. So won't Nestlé just pay me $120k a year now? The practical benefit for the company is that people won't get paid before they've actually carried out any work. The drawback is that a very small number of people may pass up Swiss jobs because the benefit no longer exceeds the risk
  • Golden Handshakes are now illegal. So an increase in messy boardroom breakdowns, increase in court cases, increase in associated costs, delay in hiring in replacements as those in exisiting positions refuse to accept termination. Benefit would be increased transparency from those cases/public breakdowns.
  • Exec Pay must be voted on by shareholders, directors must be voted in annually: Most listed companies have a block of voters who hold many shares. Using Credit Suisse as an example, 50% of their shares belong to 9 parties.
    https://www.credit-suisse.com/governance/en/2013_shareholders_significant.jsp

    Those parties don't care about exec pay or directors as long as the companies performing for them. They're going to be less interested in "fair" pay as long as the results are right.
It's a good thing, it realy is, I just don't see it as this revolution some are making out.
 

greengoose2

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Unlike in Ireland, Fdi in Switzerland is the "cerise sur le gâteau". They are more concerned with the doings of Migros, Brown Boveri, Firmenisch and a raft of local stuff than the multinationals.

The Swiss do not do revolutions. They mostly go quietly about their business and make sure that the ideals of 1291 are maintained.
 

southwestkerry

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yahoo Finance had the story yesterday. Good read but the main point their was CEO and pensions golden-handshakes. The kind that would put us in Ireland to shame I might add.
swK
 

Sync

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Could Ireland function without golden handshakes?
I'd argue no business can to some degree. If your local building firm wants to fire their foreman due to lack of competence, they'll usually offer above statutory rates to get rid of them quickly and quietly, and bring someone in without damaging productivity. That's a golden handshake, just at a smaller scale.

The same is true for a listed company. We want a new CEO. We have him waiting, but the old CEO won't leave, or is publicly insulting the company, or is suing, or is getting a union involved etc etc. Handshakes are a cost of doing business.

The impact here of course is that shareholders know this. Some workaround will be found.
 

ShoutingIsLeadership

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I'd argue no business can to some degree. If your local building firm wants to fire their foreman due to lack of competence, they'll usually offer above statutory rates to get rid of them quickly and quietly, and bring someone in without damaging productivity. That's a golden handshake, just at a smaller scale.

The same is true for a listed company. We want a new CEO. We have him waiting, but the old CEO won't leave, or is publicly insulting the company, or is suing, or is getting a union involved etc etc. Handshakes are a cost of doing business.

The impact here of course is that shareholders know this. Some workaround will be found.
Would payng out someone's contract not be the workaround, in the case of a corporate?
 

Analyzer

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Any chance that it might see JP or Derek Quinlan rediscovering their long lost inner Irish PAYE taxpayer ?
 

Analyzer

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Sync

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Would payng out someone's contract not be the workaround, in the case of a corporate?
Depends if that's the number you want. If I want to get rid of you and your contract's got $50k left on it but you want 100k to go away quickly and quietly, I now can't do that under Swiss law. So a result that gives both of you and the company a good result is no longer possible.
 

ShoutingIsLeadership

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Depends if that's the number you want. If I want to get rid of you and your contract's got $50k left on it but you want 100k to go away quickly and quietly, I now can't do that under Swiss law. So a result that gives both of you and the company a good result is no longer possible.
Settle for 50k pay-off and then re-hire the ex-CEO as a tea-lady, who is bound by the company's terms and conditions of confidentiality, and permanaently works from home - on 50k for 3 months.
 

Sync

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That's one potential solution, extended gardening leave, "Bonus" payouts etc etc. There's lots of work arounds to it, but it's forcing companies to be living by the letter but clearly not the spirit of the law. Which we don't want to see.
 

zakalwe1

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i think its a great idea, especially the fine of 6 years salary if you break the rules. irish company law for years had fines of up to 3 months and 1250 (which was 1000 old irish punts converted to euro). both of which are miniscule and not a deterrant for corporate wrongdoing.

interestingly, this referendum (called the "rip-off initiative") arose on the back of several scandals regarding very high pay for poor performance.

"Public opinion toward executive pay is still shaped by the outrage at bank bosses who received million-pound bonuses during the 2008 financial crisis, when ordinary investors were seeing their dividends slashed and the value of their shares fall sharply.

The campaign for a "Yes" vote recently got an unexpected boost when it emerged that the outgoing board chairman of Swiss drug maker Novartis AG, Daniel Vasella, was due to receive 72 million Swiss francs (€59m) over five years as part of a deal to prevent him from going to a rival firm.

When Vasella - facing public outrage - dropped the deal, attention shifted to Edward Breen, the American chairman of Tyco, for reportedly earning 30 million francs (€24m) last year."
Swiss vote on 'rip-off initiative' | BreakingNews.ie
 

Analyzer

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That's one potential solution, extended gardening leave, "Bonus" payouts etc etc. There's lots of work arounds to it, but it's forcing companies to be living by the letter but clearly not the spirit of the law. Which we don't want to see.
You mean a role that we could describe as a

Greenfingers golden handshake ?
 

feargach

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Depends if that's the number you want. If I want to get rid of you and your contract's got $50k left on it but you want 100k to go away quickly and quietly, I now can't do that under Swiss law. So a result that gives both of you and the company a good result is no longer possible.
Can't you offer the guy you want out of the job a purely ceremonial, consultative well-paid role, and hire the new guy that you want for the CEO job?

Both situations assume that the old CEO is willing to leave his present role and be bought off. So instead of a golden handshake, he gets a changed job description even though he spends his time golfing.
 
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