All the things that have been tried in the United States to slow the growth in executive pay haven’t accomplished a lot.
The disclosures in proxy statements have certainly gotten a lot longer. Shareholders get to say they don’t like the CEO’s deal, but the votes are nonbinding.
It’s hardly surprising, then, that the median pay package for CEOs of the Standard & Poor’s 500 last year finally broke eight figures, up about 9 percent from 2012, based on an analysis by the Associated Press. A big-company chief executive last year made 257 times the average worker’s salary, up from “only” 180 times the average worker’s pay in 2009.
Eye-popping compensation for top executives is not just an American phenomenon, of course. Wrangling over executive pay has recently become a common occurrence, for example, at London annual general meetings.
But in looking around for a place where good sense on executive compensation has prevailed, perhaps the best lesson comes from Switzerland, and from an unlikely activist named Thomas Minder.
It was his single-minded, decadelong campaign to curtail executive compensation practices he thought were abusive that led to a sweeping referendum victory last year that made executive compensation subject to a binding shareholder vote.
Just as important to what changed was how the rules were changed, via a direct action of voters. This was no tweak of the rules by lobbyists and political leaders in the capital; it was the whole country debating and then deciding on what was fair.
In that wealthy, business-friendly country, it had become very uncool for one employee to pull millions of Swiss francs out of a publicly held company.
Minder appears to be no left-leaning agitator, by the way. Now in his early 50s, he’s the manager and principal owner of a closely held cosmetics manufacturer that was founded in 1900.
His one-man campaign grew out of a life-threatening experience at his company back in 2001.
It took less than a month after the attacks of Sept. 11, 2001, for the global airline Swissair to be grounded: Jet fuel suppliers refused to gas up the planes without getting paid.
Minder’s company, Trybol, had supplied Swissair’s first-class passengers their toothpaste, and it got hurt badly by Swissair’s collapse.
Sometimes major customers go belly up. That’s business. But what really came to bug Minder was that Swissair had the money just before going under to pay the CEO his salary in advance, totaling nearly $10 million. That wasn’t fair.
Switzerland has a process for putting issues to a vote in a national referendum, so that is the route Minder chose to take in attacking the executive compensation system. He started collecting signatures to put a measure on the ballot.
This ballot initiative, finally before the voters last year, certainly didn’t have a technical, coolly Swiss name. Minder did not shy away from using harsh rhetoric, and in English his initiative was called the “Fat Cat Initiative.” Its formal name in German was even more inflammatory. It was “Gegen die Abzockerei” or “against the ripoff.”
Think about that. The Swiss were stepping into a voting booth and being asked to decide whether they’re really against more ripoffs.
Minder got no help from the major political parties in Switzerland, and you can imagine what the Swiss corporate community thought about it.
The initiative wouldn’t just give shareholders a direct role in approving compensation. It also basically would ban practices such as golden parachutes, even creating the potential for criminal liability for violations that could lead to a three-year stretch in the slammer. Hardly business-friendly.