Ethos, the corporate governance advisor owned by Swiss pension funds, has urged the rejection of a grass-roots proposal that would make shareholder votes on executive pay binding at an upcoming referendum.
It is backing a competing reform proposal from the government.
Swiss citizens will vote on the grass-roots proposal on March 3 2013. If the proposal, sponsored by Swiss upper house MP Thomas Minder, fails to get more than 50% of the votes, a competing proposal already approved by the Swiss parliament will be enacted.
A key difference between Minder’s plan and that of the parliament is that the former would make all shareholder votes on executive pay binding – whereas the latter would enable shareholders to decide which votes are binding and which are not.
Ethos praised both proposals, noting that for the first time, shareholders of firms listed in Switzerland would get the right to cast binding votes on executive pay.
But the advisor also said it favoured parliament’s proposal as it went further in terms of strengthening shareholder rights.Citing an example, Ethos said the government would give shareholders owning at least 25% of the listed firm the right to suggest alternative executive pay structures. These would then have to be voted on during annual meetings. “One should recall that investor concerns about executive compensation are not just financial in nature,” said Ethos.
“Risks associated with excessive variable compensation based on wrong-headed criteria must also be limited.” Ethos added that Minder’s proposal would require changes to the Swiss Constitution, meaning possible long delays in implementation.
Yet polls in Switzerland suggest that a majority of the country’s citizens will support Minder’s proposal next March, although the proposal is opposed by some major Swiss companies.
According to Ethos, 49 of the top 100 listed Swiss companies held a vote on pay in 2011. And the number of shareholders voting against Swiss firms’ pay policies more than doubled from 6.7% in 2009 to 14.4% this year.