Wage politics heats up on eve of negotiations

How much are company executives worth? Keystone

The thorny issue of unequal wage distribution continues to cause a stir in Switzerland with the annual round of pay negotiations about to get underway.

Trade unions and companies look set to clash over how much money is available for next year’s pay hikes while executive remuneration remains a hot issue both in the public and political arenas.

The Trade Union Federation has demanded a two to three per cent salary rise across the board for workers. Government civil servants have asked for two per cent on top of inflation and retail employees want a four per cent rise.

But a survey of 70 firms, employing 200,000 staff,  by the HandelsZeitung newspaper shows that employers are only willing to shell out an average of 1.5 per cent in the forthcoming rounds of negotiations, irrespective of inflation.

Thomas Daum, head of the Employers’ Association, has warned that pay rises will vary between different sectors next year with some hard hit exporters being unable to offer any increases.

Pay negotiations this autumn are expected to be fraught, with the Swiss economy slowing down, fears of recessions in some nearby countries and the still over-valued franc affecting the margins of many exporters.

Minimum and maximum pay

Unions are also claiming that the wage gap between ordinary workers and executives is widening in Switzerland.

In April, unions issued statistics showing high earners receiving 10.3 per cent more pay, over and above inflation, between 1998 and 2008. The increase was more marked for the top half per cent of super earners, who saw compensation rocket by 28 per cent.

Low to middle earners, by contrast, saw incomes increase by just two to four per cent in the same period, the report claimed. Unions continue to call for a minimum wage, while the other end of the pay scale receives critical attention.

The issue of excessive executive pay has been debated by politicians since the 2008 launch of an initiative against “rip-off” salaries by industrialist Thomas Minder. The initiative has become bogged down in parliament by warring political factions, but the issue still regularly makes the headlines.

The total remuneration handed out to executives and board members of Switzerland’s 48 biggest companies rose two per cent in 2010 to SFr1.29 billion ($1.43 billion), according to campaigning investment group Ethos Foundation.

Ethos complained in June that while compensation levels are stagnant or slightly decreasing for bosses in most sectors, the financial industry awarded top earners an eight per cent hike in 2010.

Top pay slashed

Financial executives were awarded on average SFr4.2 million ($4.7 million) while their counterparts in other industries received SFr2.5 million ($2.8 million), according to Ethos figures.

Consultancy group PricewaterhouseCoopers (PwC) released a study this week that showed a decline in the top pay of super earners and a greater convergence of compensation in the executive ranks of Switzerland’s top firms.

Chief executives of the 20 largest Swiss firms, including financial giants, received an average SFr7.2 million ($8 million) in total compensation in 2010. This represents a 12.5 per cent drop in the average remuneration of 2009.

CEOs in the next largest 28 companies, listed on the SMIM index, saw remuneration fall 6.3 per cent to SFr2.8 million ($3 million).

Furthermore, the lowest paid executives in both groups received more compensation while the top earners saw remuneration cut last year, closing the gap between the best and worst paid.

Reputational risks

Long-term incentive plans – withheld shares and options – comprised a smaller portion of total CEO compensation in 2010 than the previous year, with cash bonuses increasing in importance.

But PwC said it was impossible to deduce that long term bonuses were a declining force in remuneration packages as statistics measure shares and options that have matured from previous years, and not those awarded that year.

PwC partner Robert Kuipers said the lowering of top pay is the result of both reputational issues generated by public pressure and poor economic conditions. While conceding that bumper pay packets may return when the economy improves, Kuipers believes firms are taking notice of public opinion.

“Compensation committees are not just looking at profit outputs, they are also taking into account other inputs from executives,” he told swissinfo.ch.

“They realise that even the best short-term financial results are worthless unless they are compliant with regulations.”

But the transition from awarding pay according to short term profits to longer term targets is ongoing and sometimes subject to unpleasant internal company politics.

“In years gone by hardly anyone wanted to be part of a company’s auditing team,” Kuipers told swissinfo.ch. “Now it is the compensation committee that is no place for the faint hearted.”

Collective salary negotiations

Collective salary negotiations between employees and employers are institutionalised in most Swiss industry sectors.

In some cases the trade unions negotiate a deal for the entire sector for the coming year, whereas in other cases an accord only applies to an individual firm.

Around 60% of employees in Switzerland are directly affected by a salary deal.

Another 25% of employees can benefit if a key player in their sector reaches an accord, according to the Trade Union Federation.

The insurance industry is one of the few major sectors without collective salary bargaining.

PwC executive pay report

Chief executives of 20 leading SMI-listed Swiss companies received an average SFr7.2 million ($8 million) in compensation in 2010 – 12.5% lower than in 2009.

Their counterparts in the 28 smaller SMIM-listed exchange firms got SFr2.8 million ($3.1 million) on average last year – down 6.3% on 2009.

Last year also saw less divergence in the amounts paid to CEOs of different companies.

The top 25% CEO earners of SMI companies saw remuneration shrink by 30% while the bottom quarter received an additional 43%.

Compensation paid out to SMI chairman also saw the same compression as the gap between the highest and lowest earners decreased.

The highest paid SMI chairman saw pay reduced by 29.9% to SFr10.6 million, while the lowest paid chairman received a 29.1% raise (SFr331,275).

The structure of total compensation revealed the surprising fact that long term incentives made up less of the total CEO remuneration in 2010 than the previous year.

SMI CEOs saw long term plans make up 41% of their total remuneration in 2010 compared with 53% in 2009. For their SMIM counterparts the proportion decreased from 32% in 2009 to 29% in 2010.

The impact of base salaries on total compensation remained about the same, but cash bonus made up a larger proportion of compensation in 2010 than in the previous year.