Swiss vote may cap CEO pay at 12X lowest worker's salary

Swiss voters will weigh in on a referendum Sunday that would pass legislation to cap the pay of top executives at no more than 12 times the lowest-paid workers in their companies.

The so-called 1:12 initiative for Fair Pay is an attempt to narrow a growing wage gap in one of the world's wealthiest nations and could mean big pay cuts for business leaders.

A youth wing of the Social Democrats gathered the 100,000 signatures needed to force a nationwide vote.

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Switzerland has a high standard of living, but the Swiss, like members of last year’s Occupy movement, have become alarmed at the rapid rise in executive pay packets by comparison with low-skilled labour.

A poll two weeks ago showed the nation almost equally divided on the issue.

In March, Swiss voters opted in favour of controls on executive pay, forcing public companies to give shareholders a binding say over compensation.

The European Commission is working on a proposal for similar rules that would be applicable across all 27 countries of the EU, where there has been outrage over bank compensation when so many financial institutions required bailouts.

This measure would go further, harnessing the pay scale of CEOs to the lowest salaries earned at their companies – about 4,000 Swiss francs or $4,600 Canadian. That would put the top CEO pay at about $650,000.

Switzerland is headquarters for major international companies including Novartis, whose chair and CEO Daniel Vasella earned $78 million last year, helping to fuel the anti-CEO rhetoric.

Businesses such as Glencore Xstrata and Roche, which are headquartered in Switzerland, say they may consider leaving the country if the rule is passed.

The fear is that they will not be able to attract top talent if pay is capped.

Armine Yalnizyan, senior economist at the Canadian Centre for Policy Alternatives, argues there often is no relationship between performance and top executive pay. 

In a debate on CBC's Lang & O'Leary Exchange, she said the Swiss people have asked for the vote because they believe pay scales are inequitable.

"The way they have articulated this, there’s nobody in the company that should make in one month what their co-worker has to work all year to make," she said.

"The legislation is being proposed because Switzerland is not only one of the most prosperous countries but one of the most equitable countries. Only about five per cent of the companies in Switzerland will be affected by this legislation," she added. 

Goldy Hyder, president of Hill & Knowlton Strategies, said legislation is not the right way to reign in CEO pay where it doesn’t match performance.

"I don’t see why the government should be intervening in setting compensation in private sector companies.  This should be something that is taken care of by the shareholders and by the boards. It’s their responsibility," he said. 

There is an option for companies to keep pay scales low and reward their executives with stock options, or to outsource the low-paying jobs, so they don’t appear on company payrolls.

Both these measures could hurt the Swiss business environment and an intense lobbying effort is going on to defeat the referendum.

To pass, the initiative needs to win a majority in the country's 26 cantons and among the total population.