Senate fails to crack down on fat cat salaries

Moves to impose limits on salaries for top executives have been dealt a blow in parliament.

On Thursday the Senate rejected salary caps and a ban on special payments to senior managers. A people’s initiative had demanded the restrictions to counter what it considers excessive pay packages.

But the Senate came out in favour of granting shareholders the right to set the remuneration for company board members.

The other parliamentary chamber, the House of Representatives, is still to discuss the issue before Swiss voters have the final say at a later stage.

The Senate on Thursday threw out an initiative launched by a businessman with 26 votes to ten, and instead came out in favour of a reform of the shareholder law.

As part of the amendment, owners and investors only have an advisory say on top managers’ salaries. So-called golden parachutes, including severance pays, cash bonuses and other financial benefits, remain legal.

The drawn-out debate, which took place over three days, pitted mainly centre-left supporters of stronger shareholders rights against the majority centre-right in the Senate.

Most representatives of the Radical and the Christian Democratic Parties warned of harming the business community as a whole because of a small number of cases of unacceptable fat cat salaries.

Speakers pointed out that small and medium-sized entreprises (SMEs), which are the backbone of the economy, would suffer from stricter rules.

“We must not give up our liberal system as a whole because there have been a few black sheep,” said Radical senator Pankraz Freitag.

Good governance

For their part, the centre-left Social Democrats and the Greens said their aim was to increase transparency and endorse good governance rules, but their calls were not heeded.

Ernst Leuenberger and Luc Recordon both unsuccessfully appealed on the centre-right to show willingness to compromise.

The majority won the day with 26 votes to 8, while five senators, including some from the centre-right, abstained.

Géraldine Savary of the Social Democrats said the Senate had missed an opportunity to strengthen shareholder rights and increase transparency.

However, Christian Democrat Hansheiri Inderkum welcomed the outcome of the debate.

“It is up to the Senate to legislate without giving in to public pressure,” he said.

Toothless

Justice Minister Eveline Widmer-Schlumpf indicated she was disappointed with some of the decisions by the Senate.

“You chose to make some regulations toothless, but the government hopes further amendments will be made by the House of Representatives at a later stage,” Widmer-Schlumpf said on Thursday.

The prestigious Neue Zürcher Zeitung newspaper, traditionally close to the business community, noted that the debate was marked by divisions within the centre-right and a contradictory policy of the centre-left.

“It seems illogical that the left seeks to boost shareholder rights although it has criticised the shareholder value policy in the past,” an editorial in Wednesday’s NZZ said.

The Zurich-based Tages-Anzeiger, perceived as more centre-left, criticised the politicians for sitting on the fence.

“The Senate is acting just like those managers with fat cat salaries who believe no measures are necessary because angry citizens will eventually calm down,” the Tages-Anzeiger said after the first day of debate.

Radical

Campaigners for a proposal to limit executive pay were pessimistic about the Senate’s or the government’s willingness to compromise.

“I believe we need a radical reform so we can have a sound economic system,” Thomas Minder told public television.

The businessman is the driving force behind a people’s initiative which seeks to limit executive pay and boost shareholder rights by decentralising some of the decision-making authority within publicly listed firms.

The campaign collected more than 118,000 signatures to force a nationwide vote on the issue.

The initiative was launched in 2006 in the wake of the collapse of the former national airline, Swissair, and widespread concerns over what are considered excessive salaries for managers and board members.

Urs Geiser, swissinfo.ch

Key facts

There are about 180,000 limited companies in Switzerland.
About 300 of them are listed on the stock exchange.

Context

Four Swiss companies, UBS, Credit Suisse, ABB and Nestlé, introduced an advisory vote for shareholders on manager pays.

Novartis, which also discussed the proposal by the Ethos Foundation for Sustainable Development, rejected it earlier this year.

An initiative was launched in 2006 and handed in February 2008 with more than 118,000 signatures.

Three out of four citizens have come out in favour of limiting managers’ salaries according to an opinion poll published last month.