Swiss voters will decide on November 24 whether to make it legally binding for all companies to ensure no employees are paid less in a year than the highest-paid executive makes in a month.
Less than nine months after the vote on the initiative against fat-cat salaries, promoted by independent businessman Thomas Minder, the Swiss are to vote on another proposal fuelled by public indignation at the exorbitant pay packets of some the country’s top managers. This is the initiative “1:12 – for fair pay”, launched by the Young Socialists.
While Minder’s initiative, adopted by the people in March, concerned only publicly listed companies and gave shareholders power to determine executive pay, this new initiative is aimed at all companies and provides for verification by the government.
To put the brakes on high-flying executives, the youth wing of the Social Democratic Party wants the highest salary paid by a company to be no more than 12 times the lowest wage. In most small and medium-sized companies and public sector administrations, no adjustment would be required, because they are already within the limits. The measure would affect large companies, including some state-owned companies, with very high rates of executive pay.
The objective of the initiative is a more equal distribution of wages. The promoters believe that limiting disparities in income will curb the remuneration of top management and thus allow increases for the lower-paid.
Social justice versus free market
“It is a question of social justice,” parliamentarian and former president of the Young Socialists Cédric Wermuth told swissinfo.ch.
In the last 15 years in Switzerland increases in pay were definitely lower on average than increases in productivity, he says, because “a tiny minority of top managers, especially in the big companies, have pocketed the lion’s share of total profits”.
“The Swiss economy enjoys success, and it competes well internationally,” said Jean-François Rime, president of the Swiss Small Business Federation.
“This is due to a number of factors, in particular our relatively liberal labour legislation. We don’t need decrees from the government to fix maximum or minimum wages.” He condemns this initiative “of clearly interventionist stamp” as being opposed to the principles of the free-market economy on which Switzerland is based.
Furthermore, if the 1:12 initiative were to pass, it would not produce the effects desired by its promoters, added Rime, who is a businessman and politician of the rightwing Swiss People’s Party. “The lowest wages would not increase, but jobs would be cut at the bottom of the pay scale, because to avoid being subject to this rule companies would contract out a whole series of jobs.”
“Big companies that have top managers with exorbitant salaries and who are thus affected by the initiative already outsourced all their low-paid jobs in the 1990s,” noted Wermuth.
The Social Democrat also believes that “contracting out to get around a standard set by the people would be undemocratic and illegal. If the initiative were to be accepted, parliament would need to pass a law to define clearly what is allowed and what is not.”
The bottom line on income disparities
The highest pay exceeds 12 times the lowest income in about 1.5% of Switzerland’s companies (around 1,300 firms).
The limit is exceeded by about 4,400 individuals. This is the finding of an independent study by the KOF Swiss Economic Institute of the Federal Institute of Technology in Zurich, published in early October. It was based on 2010 data for a representative sample of 43,627 companies throughout Switzerland. The total wage bill affected by this initiative amounts to about CHF1.5 billion.
In 96.2% of the companies examined, the ratio was less than 1:8. The average gap between top salary and minimum wage is only 1:2.2.
Large companies (with 2,001 or more employees) are proportionally overrepresented among those affected by the initiative.
In total, the companies which in 2010 had a pay gap greater than 1:12 employed about half a million people, compared to 2.91 million employed by those that did not exceed it.
Widely divergent scenarios forecast
Opponents of the initiative fear companies moving abroad and a chilling effect on foreign companies that might be interested in setting up shop in Switzerland - and thus loss of jobs and an increase in unemployment. The flight of companies and the lowering of high salaries, they warn, would result in a drastic fall in revenue from tax and social contributions at all levels – federal, cantonal and local.
According to a study commissioned by the Small Business Federation and carried out by the University of St Gallen, if the 1:12 initiative were to pass, depending on the scenarios hypothesised, falling revenue for the public coffers from social contributions and taxes could vary between CHF2 billion and CHF4 billion ($2.2-4-4 billion) a year. “Even taking the less negative scenario, I think there is enough to say no to the initiative,” said Rime.
The government itself, which is opposing the initiative, has stated (in answer to a parliamentary question from Rime) that it is unable to supply any reliable data in advance on the economic consequences for old age and survivors’ insurance, since there is considerable uncertainty about what the reactions of companies might be if there was a yes vote in November, as Wermuth emphasises. This position was made clear by Interior Minister Alain Berset, speaking in parliament this September.
Another independent study, this time by the KOF Swiss Economic Institute of the Federal Institute of Technology in Zurich, has reinforced the conclusion that it is impossible to forecast the effects of the initiative “because of lack of experience with the policy measure” involved. Any hypotheses “would just be speculation, given the uncertainty on the application of the initiative”, the researchers have emphasised.
Wermuth admits the possibility of a dip in government revenues in the initial phase. But in the long term he expects “a redistribution of salaries towards the bottom which would boost consumption to the advantage of the entire Swiss economy”. This would ultimately mean more revenues for government from sales tax and tax on corporate profits.
According to the Young Socialist campaigner, the country would thus return to the “Swiss model of major economic progress of the post-war years, which was a model involving small disparities in pay”. According to Rime, on the other hand, “what is at stake here is government interference in the relations between workers and employers, something foreign to Switzerland’s success model”.
Putting it in the Constitution
Launched by the Young Socialists, the people’s initiative “1:12 – for fair pay” was submitted in April 2011 with about 113,000 verified signatures.
The proposal is to put a new article in the federal constitution to the effect that “the highest salary paid by a company may not be more than 12 times the lowest salary paid by the same company. Salary means the total of payments made (money plus in-kind payments or services) for a position of employment.” There are exceptions for the pay of trainees, interns and people in sheltered workshops.
If the initiative is approved in the November 24 vote, the relevant legislation would have to come into effect within two years.
Government and parliament are recommending rejection. The initiative is being supported by the parties of the left and the trade unions, while it is opposed by the parties of the right and centre and by the employers’ associations.
To pass, the initiative needs to win a majority both of the total population and the cantons.
(Translated from Italian by Terence MacNamee), swissinfo.ch