Swiss roll over on exec pay restraint

Posted by Elizabeth Harrison in Personal Finance on 4 December 2013 - Elizabeth is a Senior Credit Analyst at checkmyfile.

The Swiss are not renowned for kicking up a fuss but it would seem even they have their limits when it comes to executive pay.

The Swiss people recently voted on proposed laws to limit how much executives can earn. If these laws had been put through it would mean managers at the top of companies would not be able to earn more than 12 times the wage of the lowest-paid worker in that same company.

Although the proposal was rejected, 34.7% still voted in favour of the cap on executive pay. An earlier referendum led to limits being introduced for bonuses and golden handshakes, so the days of excessive pay for top executives may still be numbered.

At the top end, Swiss chief executives can earn over 200 times the pay of their employees and this has brought about much debate on bonuses and pay. It’s a familiar theme in the UK in the light of the recession.

When the recession hit and the failures of our banks were revealed, many were appalled at the bonuses and redundancy packages the bank bosses were receiving in return for what was essentially a job done badly. EU measures have since looked to address this issue.

Earlier this year bankers’ and financial traders’ bonuses were capped at a year’s salary. To those struggling to get by on minimum wage this might seem a step in the right direction but this still allows astronomical bonuses.

A year’s pay as a bonus is a significant amount already regardless of one’s job but when you consider how much is earned as the base salary in these industries, such figures are not only excessive but disproportionate.

Granted, skill, experience and the level of responsibility involved should all be taken into consideration but there are many organisations where people of the same skill and experience level are being paid considerably different amounts simply due to the structure of a company and their position within it. Should one person’s time be worth significantly more than another’s?

The person responsible for cleaning the offices in these organisations is likely not receiving the same rewards regardless of how well they do their job. Comparing the cleaner with the MD does focus on the extreme and you might argue that more responsibility means greater risk and should therefore merit greater rewards but at the same time. The cleaner is performing a manual, often unpleasant job that few would choose to do. If workers from both the top and shop floor of a company are working similar hours and performing their job to the best of their ability, why should one be valued so much higher than another? At every level, employees are contributing to the overall success of a company so shouldn’t all get a share in the rewards too?

That's not to say that the ideal would be for everyone to receive the same pay regardless, but it is the disparity which is the issue. When the minimum wage is not even considered to be a living wage and while executives take home millions in bonuses, shouldn’t steps be taken to redress the balance or are we happy for the gap between rich and poor to increase?

Maybe more companies should take a leaf out of John Lewis’ book. The business is run as a partnership so each employee is a partner and able to influence the business as a whole. If workers know that their opinions and contributions are valued, this can only boost morale and contribute to the success of a business. Rather than a divide between workers and management, a system where all are rewarded motivates and encourages all to pull together.

John Lewis partners are entitled to a decent pension scheme, a generous holiday allowance and can make use of the company’s sailing club complete with yachts, holiday accommodation and country estates, with a number of social activities available to every worker.

When it comes to the annual bonus, this is calculated as a percentage of each partner's salary. Though the percentage can vary depending on profits, the key point is that this percentage applies to all regardless of position within the company. The John Lewis partnership recognises that its success is as reliant on the employees on the ground level as it is on the management at the top. Should this ethos not be promoted in more businesses? Would a ratio cap not be a fairer way of judging? If the big boss feels he deserves a pay rise then should that not be filtered down through the company too?

Anyone who has been shocked and appalled by the amount executives are paid will likely follow the Swiss story with interest. Though this proposal was rejected, it's unlikely to be the last we'll hear of the matter. The fat cats had better watch out because their pots of gold aren't safe just yet...

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