ZURICH (Reuters) - Switzerland will vote on Sunday on whether to limit the salaries of top executives so they don’t earn more in a month than the lowest paid workers earn in a year, a move that could mean big pay cuts for business leaders earning millions.
The so-called 1:12 initiative for Fair Pay, the latest attempt to narrow a growing wage gap in one of the world’s wealthiest nations, was brought about by the youth wing of the Social Democrats (JUSO), who gathered the 100,000 signatures needed to force a nationwide vote.
Despite its high standard of living, Switzerland is a generally egalitarian country, increasingly unhappy with rising wealth inequality as wages of executives balloon while those of low-skilled workers lag.
“After the Second World War the growth of salaries and wealth was more or less parallel,” JUSO President David Roth told Reuters. “In the last ten years one small part of society took the big profits and the majority ... had less in their pockets.”
In 2010, the 10 percent of the workforce with the lowest salaries earned just under 4,000 Swiss francs ($4,400) per month, according to the Swiss Trade Unions Association. That suggests that top earners’ wages would be capped at around 576,000 francs ($632,000) a year if the referendum passes.
That would imply savage cuts for some chief executives. The average compensation of CEOs at Swiss blue-chip companies was 6.7 million Swiss francs in 2012, according to accountants PwC.
Aside from its own banks and industrial giants, Switzerland is also home to high-paying trading houses attracted by favorable tax rates, in addition to the scenery and the agreeable lifestyle.
Calls to limit the pay of top executives are not restricted to Switzerland. Anger over huge payouts was reflected in protests by the Occupy Movement.
French President Francois Hollande is pushing ahead with a cap on pay at state-owned firms of 20 times that of the lowest paid employee. Spain’s opposition Social Democrats have adopted the 1:12 ratio as part of its economic policy, Roth said.
But the Swiss system of direct democracy - which allows for up to four national referendums a year - means popular outrage can more easily be translated into strong action.
Disbelief over a proposed $78 million payoff to former Novartis chairman Daniel Vasella helped fuel support for a proposal to give shareholders a binding say on executive pay, which was overwhelmingly backed by voters in March.
Some cantons have also scrapped preferential tax breaks for foreigners, while a grassroots committee is further calling for Switzerland to introduce a basic income of $2,800 per month from the state.
Opponents, including the government and big business, say the proposal would hurt competitiveness, drive companies out of the country, cost jobs and lead to a shortfall in social security contributions and higher taxes.
They have plastered train stations and billboards with black placards calling for a ‘no’ vote to a ‘wage diktat’. Supporters, lacking the budget of business lobby groups, have hung red flags emblazoned with 1:12 from balconies and windows.
Glencore Xstrata Chief Executive Ivan Glasenberg, eligible to vote in the referendum after taking on Swiss nationality, told Swiss Sunday newspaper SonntagsZeitung the initiative would be a catastrophe for his firm and could force the commodities giant to leave Switzerland.
Glasenberg was paid $1.5 million last year, but as a shareholder he also made $173.5 million in dividends in the last year, which would not be affected by the referendum’s proposals.
Roche CEO Severin Schwan said it would be harder to recruit skilled staff if the proposal is accepted. Schwan was paid 261 times as much as Roche’s lowest paid worker in 2012, according to a study by employee group Travail.Suisse.
The warnings appear to have rubbed off on voters. The latest poll published on November 13 by gfs.bern found 36 percent of respondents were in favor of the proposal, while 54 percent were against and 10 percent were undecided.
To pass, the initiative needs to win a majority in the country’s 26 cantons and among the total population.
If the proposal is adopted, companies may try and get round the rules by outsourcing low paid jobs, giving top earners foreign subsidiary contracts or by leaving Switzerland altogether, say Kepler Cheuvreux analysts.
Cutting top salaries at firms in the financial sector, where wages are among the highest costs, could even have the side effect of boosting margins, they say.
In 2009, Credit Suisse CEO Dougan took home 19.2 million francs in cash and stock, and was also paid 70 million francs worth of stock under a bonus plan for 2004. That meant his total pay was 1,182 times that of the bank’s lowest paid employee, according to Travail.Suisse.
Credit Suisse’s former chairman Walter Kielholz has since called the payment program a mistake.
The 1:12 campaign has not only made executives jittery. Managers of Swiss soccer clubs have also gone public with concerns about how to attract and retain top talent.
“Switzerland is not an island,” Andre Dose, chairman of the Grasshoppers club in Zurich told the Schweiz am Sonntag paper. “If clubs can’t pay the best Swiss players market rates, they will transfer abroad even earlier.”
($1 = 0.9120 Swiss francs)
Editing by Giles Elgood