Switzerland Clamps Down Hard on Obscene CEO Pay

And with spiraling inequality, the rest of the wealthy countries should follow suit.

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Yesterday, voters in Switzerland overwhelmingly approved new measures to clamp down on executive pay. Under the approved referendum — which means that the new provisions will be added to the Swiss constitution — shareholders will have the ability to veto executive pay packages, so-called “golden parachutes” will be outlawed, and executives who defy the rules could see jail time. As the Wall Street Journal’s Andrew Peaple wrote, “Swiss voters’ anger is understandable. Like other countries, it has seen executive pay rise out of all proportion over the past decade”:

Switzerland has the highest remuneration per board member in Europe, according to Deloitte. Pharmaceutical company Novartis’s recent offer of a six-year $76 million golden parachute to outgoing Chairman Daniel Vasella is the latest example of seemingly egregious rewards. UBS Chairman Axel Weber was paid $5.3 million when he joined the bank this year. Compared with Swiss average wage of $73,500, such payments look out of whack.

The European Union has also approved new restrictions on bonuses at large financial firms.

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.

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