Should CEO pay be limited? That’s a question Switzerland is putting to its voters this month. A new referendum on the ballot would institute what amounts to a “maximum wage” for business executives.
Under the proposed law, Swiss CEOs would not be permitted to earn more than 12 times the amount of their company’s lowest paid employee. The idea is to halt income equality by lessening the salary gap.
Switzerland’s ill will toward rising CEO pay has mounted in recent months. In March, 68% of Swiss people voted on a similar reform, which outlawed golden parachutes and signing bonuses. This victory motivated 100,000 voters to sign a petition to get this new legislation aimed at CEOs on the ballot, as well.
For what’s it worth, advocates of the proposal point out that the law would only impact 0.3% of existing businesses – and 3,400 corporate executives in total — in Switzerland. While only a sliver of companies have a massive pay discrepancy, those that do tend to be major offenders. Five of the highest compensated CEOs in all of Europe work in Switzerland, with the top ones earning about $14 million apiece.
Although the proposal looked like it may pass after it first gained recognition, the poll numbers shifted in the following months. According to The Wall Street Journal, 54% of Swiss voters now intend to vote against the referendum.
The sway in public opinion is not surprising considering a massive campaign against the potential law. Large companies in particular have allocated significant money to prevent the proposal from taking effect. Economic experts believe that the legislation would compromise the integrity of the free market and scare large businesses from operating in Switzerland.
Part of the problem might be that the reach is too much too soon. If the ballot measure were to have settled for a higher ratio than 12:1, it is possible that the majority voters would see the issue as being just without pushing top businesses out of the country.
Another one of the obstacles for the proposed law is that Switzerland’s income inequality is much less significant than other industrialized nations like the United States and Great Britain. Since Switzerland isn’t feeling the pain of income inequality as much as other parts of the world, this measure doesn’t seem as necessary.
Then again, it’s probably the country’s attention to this issue that has probably helped to minimize the problem in the first place. Even if the legislation doesn’t pass, the public is making it known to its business executives that it is monitoring its behavior and won’t stand for the situation to get out of control.
Perhaps Americans – who could really use this type of reform – could take a clue from Switzerland and attempt to institute a similar policy of its own. In 1982, American CEOs earned 42 times their average employee; today, that discrepancy has skyrocketed to American CEOs earning 354 times their average employee.
Yahoo Finance has a compelling chart demonstrating how much money American executives would lose if the 12:1 rule were applied in this country. Even the CEOs who take home over $30 million annually would suddenly find their salaries slashed to the higher six figures.
While those changes may be too drastic to be realistic, a ratio of even 100:1 could help keep things in check. If CEOs believe they can’t possibly work for/live off of a salary with that equation, how do they suppose their lowest paid employees are getting by? Hey – if executives want raises under that system, they could always start paying their employees more and everyone would win.