The Swiss have spoken. Now the lawyers are trying to make sense of it all.
Swiss voters overwhelmingly voted to put a lid on executive pay just over a week ago, handing shareholders a binding vote on compensation packages and banning merger bonuses and lavish severance. Corporate directors who flout the new rules ostensibly will face fines and even jail (link in German), but the ultimate details will be worked out by Swiss lawmakers in coming months.
From the continent, the vote looks like a harbinger of things to come. EU finance ministers last week backed a plan to cap banker bonuses at one to two years’ salary. The European Commission is drafting plans to give shareholders a broader veto on executive pay packages generally. Even Britain is mulling similar measures, despite misgivings by the government.
From the US, where company shareholders only recently got the right to an automatic (but non-binding) vote on executive pay, the referendum came off as little more than an amusing sideshow, at least at first glance: The cradle of international banking and finance turns against its own. Nestle, UBS, Novartis… what other Swiss companies do most people outside of Switzerland know?
Probably more than they realize. In recent years, a number of big global companies have moved their headquarters to Switzerland, or reincorporated there, citing a business-friendly atmosphere. In 2008, insurance giant Ace reincorporated there from the Cayman Islands (and moved its headquarters to Zurich). The same year, off-shore drilling giant Transocean—perhaps best known as a key player in the Deepwater Horizon catastrophe—also abandoned the Caymans, reincorporating in Zug, Switzerland. In 2009, the once-American conglomerate Tyco International moved from Bermuda to Schaffhausen. The following year, energy-services powerhouse Foster Wheeler decamped for Geneva from the Caymans. Most kept major offices in the US or nearby Bermuda.
European companies have gotten in on the act as well. In 2010, Wolseley, a large British plumbing and heating firm, announced a new corporate structure based in Jersey and Switzerland, citing tax benefits. Publisher Informa, which puts out Lloyd’s List, had announced something similar in 2009. And other companies have said they would move major subsidiaries to Switzerland from elsewhere in Europe. Among them: Coca-Cola Hellenic Bottling Company SA and the intellectual property arm of Richard Branson’s Virgin empire, as well as European arms of McDonald’s, Kraft Foods, Yahoo! and Nissan.
For many of the big firms that have moved to Switzerland wholesale, restraint in executive pay isn’t exactly a hallmark. Tyco paid its last chairman and chief executive, Edward Breen, more than $70 million over the past three years, including $7.5 million in his Sept. 28 departure. Evan Greenberg, Ace’s chairman and CEO, made $45 million in the three years ending in 2011 (the most recent numbers available), while at Transocean, CEO Steven Newman made more than $21 million in the same period.
Even where severance and golden handshakes haven’t come into play, big chunks of the top execs’ pay at these companies have come in the form of special pensions or perks. But Swiss voters might want to think twice before they tackle those. At Transocean, for example, Newman’s 2011 pay included reimbursement for some $517,180 in Swiss taxes, as well as a variety of cost-of-living adjustments ($102,296), housing allowances ($189,437), school costs ($88,027) and more intended to make it easier to live abroad.
Whether companies like Transocean decide to move again, revamp pay packages (paywall) to get around the various rules, or simply trust in the good will of their shareholders to approve these kinds of arrangements remains to be seen. But few companies even mentioned the impending vote in their disclosures to shareholders during the weeks leading up to the referendum, and fewer still have cautioned them about the potential impact in the week since. Noble Corp., another offshore drilling contractor that moved to Switzerland from the Cayman Islands in 2009, doesn’t mention it in the proxy statement it issued yesterday.
That could mean corporate lawyers didn’t expect the vote to go against them. Or maybe they think that Swiss shareholders, like their American counterparts thus far, will approve the overwhelming majority of executive pay packages. Perhaps a little pre-emptive frugality would be in order.