Swiss voters will decide Nov. 24 on introducing a salary cap that would limit the wage spread in companies to 1:12. The economic lobby is nervous – success for the proposal in the referendum is not as unrealistic as once expected.
It wasn’t just the smallholders in the
Swiss multinational pharmaceutical company Novartis who were disgusted
by a 79-million-dollar farewell package to resigning CEO Daniel Vasella
earlier this year. Public outrage was huge.
Two weeks later, Swiss citizens sent a clear message to executives
that their increasingly excessive salaries and bonuses would not be
tolerated: 68 percent of voters supported the “fat cat initiative” which
promised to curb salary excesses and to ban big payouts.
That referendum was more about strengthening shareholder democracy.
Once the initiative is fully implemented, shareholders of Swiss
companies will have a veto right on payments to executives. Within a
one-share-one-vote frame however, concerned shareholders usually get
outvoted by large investors.
“The fat cat initiative includes some good aspects. However, it
neither helps much in limiting big salaries, nor in providing a solution
to unequal income distribution,” argues David Roth, president of the
Swiss Young Socialists Party (Juso).
Juso therefore launched the 1:12-initiative which demands that
executives’ salaries be capped at 12 times that of the lowest-paid
worker in the same company. “No manager should earn more in a month than
his employees get in one year,” Juso demands.
Switzerland’s powerful neoliberal lobby had worked hard to prevent
the success of the fat cat initiative. After its expensive campaign
failed and with the 1:12-initiative already on the horizon, it became
increasingly nervous. Further, a referendum on the introduction of a
national minimum wage is scheduled in 2014.
Once the poorhouse of Europe, Switzerland has transformed into one of
the richest countries on earth. Today, it has one of the highest GDP
per capita in the world and unemployment at just three percent.
In terms of income inequality, Switzerland ranks around Europe’s
average. According to the freshest numbers, 3.5 percent of the employed
in Switzerland are considered working poor, while 11,586 top earners
make more than half a million Swiss francs a year.
According to Daniel Lampart, chief economist of the Swiss Federation
of Trade Unions (SGB), the growing salary excesses over the past 20
years were caused by the fact that executives’ earnings were
increasingly connected to profits and the stock prices of their
companies. “The introduction of bonuses allowed managers to divert big
amounts of money from the aggregate wages into their own pockets.”
In Switzerland, trade unions are comparatively weak and the number of
collective bargaining agreements is low. A national minimum wage
doesn’t exist, the relationship between employees and employers clings
to the concept of social partnership, and strikes are rare. It is mainly
the upper income segment that has been profiting from the increased
individualisation of wage policies.
The campaigns for and against the 1:12-initiative have just reached
the hot phase. In one corner, there’s Juso, the trade unions and the
Social Democratic Party. The opposing side is led by the umbrella
organisation of Swiss small and medium-sized enterprises (SGV), with the
other economy-related organisations as well as the liberal and
right-wing parties on their coat-tails.
If the 1:12-proposal is voted in, only 1,000 to 1,300 mostly big
companies with about half a million employees would be affected
directly. About 4,400 top earners would face a salary cut.
The opponents’ campaign, which is unable to explain why somebody
should earn 30, 50 or 100 times as much as an employee, focuses on
warning the public how everybody would be negatively affected if the
Hans-Ulrich Bigler, director of the SGV, recently said that losses to
the old-age insurance system and to taxes could amount to nearly 4.4
billion dollars per year. He argued that tax increases would become
A closer look at the concerned study shows that this number is based
on a rather unrealistic worst-case scenario. Juso believes the
initiative would reduce income inequalities, and elevation of the lowest
wages would minimise possible fiscal losses.
Nobody is able to estimate economic and fiscal consequences at this
point, as everything will depend on how affected companies would react
to a new 1:12-rule. Would they elevate the lowest wages? Would they cut
the top wages and use the money for investments? Or would they leave the
country, as for example Ivan Glasenberg, CEO of the commodities giant
GlencoreXstrata, has threatened?
The Swiss government fears first and foremost for the country’s
competitiveness. “There is a real danger that Switzerland-based
companies could leave the country, while foreign companies searching for
a new location could be deterred by the limitations on high wages and
not settle here,” Swiss Economics Minister Johann Schneider-Ammann said
at a press conference.
When in 2009 Juso, led by David Roth, began to collect signatures for
the 1:12 initiative, nobody expected that the proposal could have real
chances for success. “The approval of the fat cat initiative in spring
represented a break with the past. After years of deregulation and
liberalisation people again started to demand rules for the economy,”
Roth is aware of the fact that only one in ten popular initiatives
turn out successfully. Nevertheless, he is confident that on Nov. 24,
David will win against Goliath.