Analysis: Swiss voters get chance to decide shareholder pay in referendum

Regardless of result, shareholders are winners in Minder proposal

If you’ve been following the debate on what to do about excessive executive pay in Switzerland, chances are you’re somewhat confused.

At the heart of the matter is a proposal from Swiss upper house MP Thomas Minder called the Abzocker-Initiative, or ‘Initiative Against Rip-off Artists’.

How can it be that Ethos, the Swiss corporate governance advisor that is one of the most vociferous advocates of a crackdown, is urging citizens to reject the proposal?

And why are the Swiss not just voting on the initiative at a referendum on March 3 next year, but also deciding the fate of a government counter-proposal?

All became clear at a lively Ethos-hosted debate earlier this month in Zurich.

The case for Minder was advocated by Susanne Leutenegger Oberholzer, a Swiss lower house MP, and Roby Tschopp, director of the shareholder group Actares.

Arguing against the initiative – and for the government’s plan – were Valentin Vogt, president of the Swiss employers’ association, and Ethos director Dominique Biedermann.

In truth, the Minder proposal and the government’s counter-proposal are not far apart. Both are milestones because for the first time in Switzerland, shareholders will help determine executive pay at listed companies.

The key difference is that while Minder would make all shareholder votes on executive pay binding, the government plan would enable shareholders to decide which votes are binding and which are not.

Oberholzer explained that after four years of debate, the parliament decided to give the citizens a choice: if a majority vote for the initiative, it will become part of the Constitution. But if it fails to win a majority, the least the parliament can do is to automatically enact a statute that also strengthens shareholder rights.Said Oberholzer: “I am not against the counter-proposal, which, in my view, is 90% of Minder. I am rather for Minder, as it would mean a change at the highest legal level – the Constitution. That is a clearer signal to our citizens that the rip-offs must stop.” Tschopp added that Minder would guarantee that shareholder votes on executive pay were respected.

But Biedermann and Vogt questioned the wisdom of abruptly going from one extreme (no shareholder say on executive pay), to another (direct say in every circumstance).

Concerned about the impact on Swiss corporate competiveness, Vogt argued for a flexible approach like the government plan. Biedermann emphasized that the problem was not just the amount of executive pay but, more importantly, the way it was structured.

Ethos has sharply criticised bonuses that it says are based on wrong-headed criteria or at odds with the company’s interests.

“The Minder initiative has cleared the way to the goal of strengthening shareholder rights. We at Ethos admit this. But the counter-proposal goes further in strengthening those rights in that shareholders will gain the right to vote on pay structures,” said Biedermann.

Specifically, the counter-proposal permits shareholders owning at least 0.25% of the listed firm to suggest alternative executive pay structures to be voted at annual meetings.

The latest polls on Minder indicate that a solid majority of Swiss back it. Asked by RI whether the counter-proposal therefore had a chance, Biedermann replied: “We have four months before the referendum. I believe that as the information on both proposals gets out, people will see the light.
“But regardless of what happens on March 3, shareholders will be the winners, as their rights will be strengthened.”