CEO Pay Curtailed
We have often pointed out the immorality and unfairness of CEO pay in the US that has grown recently from 40X average wages to 400X average wages. We considered using tax policy to even things out, even slightly, but our friend, Mason, suggested giving stockholders the right to veto such outrageous CEO contracts. The Swiss have now done this and led the way.
Swiss Back Strict Executive Pay Curbs
March 3, 2013 CNBC.com (excerpt)
“Swiss citizens voted on Sunday to impose some of the world's strictest controls on executive pay, forcing public companies to give shareholders a binding vote on compensation, result projections showed.
Claude Longchamp of pollsters Gfs.Bern told Swiss state television early returns in a referendum showed 68 percent backed allowing shareholders to veto executive pay proposals and a ban on big rewards for new and departing managers.
While anger at multi-million dollar payouts for executives has spread around the globe since the financial crisis, Swiss direct democracy — including four national referendums a year — means public outrage can be translated into action.
A few other countries, including the United States and Germany, have introduced advisory "say on pay" votes and Britain is also planning to give shareholders a binding vote on pay and "exit payments" at least every three years. Brussels agreed a cap on bankers' bonuses last week.
The clear majority in Switzerland was unusual given fierce opposition and intense campaigning by business lobby group Economiesuisse, which warned the proposals would damage the country's competitiveness and scare away international talent.
Support for the move was driven partly by big bonuses blamed for fuelling risky investments that nearly felled Swiss bank UBS, as well as outrage over a proposed $78 million payment to outgoing Novartis chairman Daniel Vasella.
"The clear support for the initiative reflects the understandable anger of the electorate at the self-serving mentality of certain managers," said a group representing most of the parties in parliament which opposed the plan. "With their misconduct, they have done the economy as a whole a disservice."
Thomas Minder, the businessman-turned-politician behind the campaign who says his proposals are aimed at ending a culture of short-termism and rewards for managers of badly-run companies, said intense corporate lobbying had backfired.
"This is a clear sign of the distance between the people and the political and business establishment," he said.
Despite threats from some executives, Switzerland is unlikely to see an exodus of big companies, drawn to the country by low taxes, stable politics and business-friendly laws.” CNBC
At the present time, in the US, stockholders can only "advise" their boards on CEO pay, even under the new Dodd-Frank law. We need to follow the Swiss lead on this.
Excerpt From ThinkProgress.org
“Many of the same problems that led to Swiss frustration with CEO pay apply here in the U.S. For instance, Citigroup CEO Vikram Pandit walked off with millions of dollars after vaporizing most of his company’s value. Duke Energy paid its former CEO $44 million for working literally one day.
Skyrocketing executive pay (along with growing pay in the finance industry) is a huge component in America’s growing income inequality. In fact, “Executives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005.” Special tax deductions for executive pay cost taxpayers billions of dollars per year.
In the Dodd-Frank Wall Street reform law, shareholders of U.S. corporations were also given new powers meant to rein in executive pay. However, Dodd-Frank only gives shareholders a non-binding vote, meaning that the corporation is able to essentially ignore it.
The corporate argument that huge executive pay packages are necessary to retain top talent has proven to be false. Yet the U.S. tax code preferences these pay packages, and there’s little shareholders (or anyone else) can do to stop them." ThinkProgress.org