Could the U.S. Be Next to Adopt Binding Say On Pay?

By Cydney Posner

Highly doubtful. But, on Sunday, Swiss citizens voted to impose binding say-on-pay votes for public companies and, according to Reuters, France and Germany could follow suit.

Reuters reports that 67.9% of voters in Switzerland voted in favor of the shareholder veto of executive pay proposals, one of the highest approval rates ever for a popular initiative. They also voted to ban big rewards for new and departing managers. Notwithstanding Switzerland's generally pro-business perspective and  "fierce campaigning" by corporate lobbyists, "which warned the proposals would damage the country's competitiveness and scare away international talent," Swiss "direct democracy - including four national referendums a year - means public outrage can be translated into strong action." Reuters reports that support for the proposals "was driven partly by big bonuses blamed for fuelling risky investments that nearly felled [a]Swiss bank…, as well as outrage over a proposed $78 million payment" to a departing executive. The plan also includes possible jail sentences and fines for breaching the new rules.

The Swiss "businessman-turned-politician behind the campaign [said] his proposals are aimed at ending a culture of short-termism and rewards for managers of badly-run companies [and that] intense corporate lobbying had backfired." Activist groups see the vote as actually improving the attraction of Switzerland as a place to do business.  But other commentators are convinced that companies will just find ways around the new laws and also question whether shareholders "will make full use of their new rights. Of the top 100 Swiss companies, 49 already give shareholders a non-binding vote on the pay of executives. But while opposition to pay deals is on the rise, a majority of investors have never voted them down." (Sound familiar?) Some are even advocating another Swiss referendum that would limit the annual compensation of executives to 12 times that of the company's lowest paid worker.

The Swiss vote to try to curb executive pay could, according to Reuters, "encourage other European countries to follow suit, with political leaders in Germany and France voicing support for compensation rules modelled on those of their smaller neighbour. ‘The Swiss often show the way and personally I think we should take inspiration,'" said the French Prime Minister.  Apparently, Chancellor Angela Merkel's spokesman was "more circumspect, saying her preference was for European Union-wide rules on executive pay." Reuters reports that the "issue of executive pay has been a hot topic in Germany since the 2008-2009 financial crisis led to taxpayer bailouts of banks and governments. It could be a key issue in the looming election, where Merkel will be seeking a third term, and is fighting off accusations from the opposition Social Democrats (SPD) that she has been too lenient on bankers. Merkel is a strong defender of the post-war ‘social market economy' model, which discourages a big gap between the wages of assembly line workers and executives in the boardroom. But income inequality has risen on her watch."  A deputy parliamentary floor leader for the SPD contended that the "'current rules are not strong enough for the fight against the excessive executive pay,… Experience has shown that voluntary measures don't work.'"

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