This year, one of the corporate world’s toughest “say on pay” laws came into effect in Switzerland. Shareholders now have a mandatory, binding vote on executive pay at Swiss companies, stemming from a referendum on “rip-off salaries” that was comfortably passed by a majority of citizens in 2013.
But the first test of investors’ new power leaves a lot to be desired, according to a local research firm. Ethos, a foundation financed by pension funds, published a report this week on shareholder meetings that claims the way votes on executive pay are carried out violates the spirit of the new law.
Only 28% of companies offered a retrospective vote to approve bonuses awarded at the end of the financial year. That meant that nearly three-quarters of companies asked shareholders to pre-approve variable pay for next year, before the firms’ actual performance is known. This is essentially a “blank check,” Ethos says, and argues that the authorities should outlaw the practice in Swiss company law.
What’s more, too few companies spell out in detail the performance conditions that must be met to trigger executive bonuses, which are passed with average support of around 90%, Ethos says. It advised its members to vote against a majority of companies’ remuneration proposals at shareholder meetings this year.
The Swiss have an ambivalent relationship with the big companies that are based in the country. Anger over “fat cat” salaries led to the referendum on the new executive-pay rules, which also outlawed so-called “golden parachute” severance payments and bonuses tied to mergers or acquisitions. But the same year, voters also rejected a referendum that would impose a cap on the pay of top executives in relation to the lowest-paid workers.
But some perspective is warranted. Despite the perceived laxity of shareholders on executive pay, Switzerland’s highest-paid CEO, Richard Lepeu of luxury goods group Richemont, made 14.3 million Swiss francs ($14.6 million) in the company’s latest fiscal year. In the US, that would put him only at 153rd in the rankings of the best paid bosses.