On November 24, 2013, Swiss voters soundly voted down (65.3% to 34.7%) (See, Geir Moulson, Swiss Reject Plan to Cap Managers’ Pay, ABC News), a proposal to limit the pay of companies’ highest paid managers to 12x that of their lowest paid rank-and-file workers, known as the “1:12 Initiative”. The 1:12 Initiative was raised by Switzerland’s Young Socialists, who succeeded in collecting 100,000 signatures to put the 1:12 Initiative on the ballot for a public vote, as a solution to pay inequality in the country. While pay inequality in some countries is far higher than the 1:194 ratio in Switzerland (See, Kalyeena Makortoff, Swiss Head to Polls to Vote on Salary Cap for CEOs, CNBC), e.g., the United States has a ratio of 1:354 (according to the AFL-CIO’s CEO-to-Worker Pay Ratios Around the World), some Swiss activists and political organizations are tirelessly attacking executive compensation and pay inequality head on.
One of the reasons the 1:12 Initiative failed is the potential consequence of weakening the nation’s competitiveness by making it harder to attract top talent and prompting companies to move abroad. But Swiss grassroots organizations are not ready to give up the fight and have other proposals that are already in process. In October 2013, a grassroots committee began tackling the issue from the opposite end by successfully collecting 100,000 signatures to hold a public vote on the “Basic Income Guarantee Initiative.” This initiative would provide a financial safety net for the entire Swiss population, mandating that the state pay all Swiss adults 2,500 Swiss francs (US$2,800) per month unconditionally (See, Denis Balibouse, Swiss to Vote on 2,500 Franc Basic Income for Every Adult, Reuters (Oct. 4, 2013)). To gather public excitement for the Basic Income Guarantee, on October 4, 2013, organizers tipped a truckload of 8,000,000 five cent coins (one for each Swiss citizen) outside the parliament building in Berne. The timing of the public vote for the Basic Income Guarantee has yet to be announced.
Under Swiss law, citizens can organize popular initiatives that serve as a vehicle to turn public concern into real action, and the public often makes use of these laws as evidenced by the several public referenda that typically take place in Switzerland every year. While the failure of the 1:12 Initiative was disappointing to some Swiss citizens, its impact has been felt around the globe. For example, some U.S. critics have begun questioning whether the U.S. should copy Switzerland’s proposal for a maximum pay ratio, and have begun pondering other ways to rein in executive compensation. Professor Lynn Stout, corporate and business law professor at Cornell Law School, has proposed making CEO pay non-deductible from an income tax perspective when pay is higher than 100x the minimum wage. Other critics have taken it one step further by proposing a cap of CEO pay at 100x minimum wage, which would combine Professor Stout’s idea with the 1:12 Initiative concept of a cap (See, John Sutter, U.S. Should Copy Switzerland and Consider a ‘Maximum Wage’, CNN (Nov. 21, 2013)).
While it’s unlikely that similar restrictions on CEO pay in the U.S. will take off anytime soon, the fact is the Swiss have us thinking about the issue, and as charged as the country is on the topic of executive pay and pay equality, we are likely to hear a lot more creative ideas emanating from Switzerland in the future.