The Effects of the ‘Fat Cat’ Vote

The soup is seldom eaten as hot as it is served.

Swiss expression, quoted by Philip Mosimann, CEO of Bucher Industries AG, Mar 5, 2013

They surprise and stun with a regularity that becomes them.  They might ban minarets after a referendum fearing the symbolic creep of Islam, but the citizens of Switzerland will also have a stab at controlling exorbitant payments to company executives if needed.  To be more precise, the March 3 referendum put to voters whether shareholders in public companies should have binding votes on pay that would effectively limit bonuses and payouts.  All 26 cantons agreed with the measure.  This is more impressive, given the financially minded nature of Swiss society.

The British will be particularly worried.  Chancellor George Osborne has been fighting a rearguard action against EU caps on bankers’ bonuses, giving credibility to the idea that any theft worth doing is worth doing well.  The Swiss have stolen a march and gone further than the EU.

The financial sector has been going about with a good bit of piffle – if you tax a banker, you are asking for trouble.  If you restrict vast payments to executives, you are giving them red cards.  They are the exceptional citizens who are to be given an open mandate on buccaneering, and Cameron’s government remains steadfast in opposing such moves.  To move in on their well earned “payments” will damage “the City”, which, in such circles, resembles a sacred totem.  The City of London has been doing its utmost best to attract high flyers from Wall Street and centres in East Asia with various packages with absurdly ludicrous packages.

The arguments against such restrictions were also trotted out by a strong lobby in Switzerland that evidently wasn’t strong enough. Economiesuisse argued that the proposals would impair competitiveness, encourage companies to offshore their operations and harm smaller companies, mustering together a campaign of fear to net a negative vote.  To help their case, a short film was commissioned, featuring Switzerland in a state of anarchy in the year 2026.  Naturally, it so happened to be ravaged by warring violence as well.  That, of course, had been because in 2013, its irresponsible residents had decided to impose the world’s tightest limits on executive pay. “It is a worst-case scenario,” suggested the film’s director Michael Steiner.  “Just to show what can happen if you make the wrong decision on laws governing the economy.”

Strong stuff, and so much so that Economiesuisse cancelled the release ahead of the March 3 referendum fearing a voter revolt.  That has not stopped their Cassandra-like worries.  A beast, they fear, has been born.

The campaign against such exorbitant bonuses and payments was given a considerable philippic by deals that almost brought Swiss bank UBS down.  Bankers had become speculators rather than caretakers.  Daniel Vasella also became a conspicuous target of public anger with an ill considered $78 million payment as chairman of Novartis, a delicious golden handshake if ever there was one.  His achievements included shedding thousands of jobs.

For all the huffing that has taken place in light of the campaign and the ‘yes’ vote, the effects of it are unlikely to be cataclysmic.  The question is whether it can be effective.  For such commentators as Alpesh Patel, working for the London based asset management group Praefinium Partners, such limitations can only get purchase if the scheme is made global (Euronews, 4 Mar).  Companies will move to areas of less resistance if encouraged.

It is unlikely that any exodus will take place.  Switzerland will retain a special place for the financial classes and companies seeking a base.  Executives will continue receiving high salaries, the only difference there being the role shareholders will play in the decisions.  And the government will have to enact legislation on the subject, a difficulty that no one is denying.  That process can be a lengthy one – politicians are still wondering how to implement the results of the 2010 plebiscite that considered expelling foreigners convicted of serious crimes (Business Standard, Mar 5).

What will change will be the innovative approaches taken to rewarding company executives.  Like thieves and code breakers, they will be one step ahead of the legislators.  Besides, there is nothing stopping shareholders from refusing to prevent high pay packages to executives.  “At the end of the day, shareholders will get more rights and the possibility to say ‘no’,” suggested Axel May, senior partners at Hostettler Kramarsch & Partner (Reuters, Feb 21).  “We have to see if they use that right.”  As Rolf Soiron, chairman of cement maker Holcim and drugs industry supplier Lonza explained to Reuters, “I think if a company wants to pay a top executive 25 million, then they will find a way to do so regardless of the initiative.”

Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge.  He lectures at RMIT University, Melbourne. Email: bkampmark@gmail.com

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Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne. Email: bkampmark@gmail.com

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