Executive salaries – is the price too high?

Swiss railway bosses, Benedikt Weibel and Thierry Lalive d'Epinay, are among those who have been criticised Keystone Archive

The pay of Swiss executives has been the subject of heated debate over the past few months, with headlines highlighting huge payouts. A study published this week adds fuel to the fire by confirming that salaries paid to company top shots continue to rank among the best in Europe.

Only France, Austria and Britain rank higher when it comes to gross salaries paid to company managers, according to the study published by Zurich’s weekly ‘Handelszeitung’ economics newspaper.

However, the Swiss come top of the tree as far as net income including bonuses. On average Swiss managers earn SFr294,000 ($164,980) a year – 21 per cent up on the previous year.

At the same time, figures published for workers on collective contracts in Switzerland showed the average salary increasing by just 2.9 per cent over the past year.

Not surprisingly, newspapers were quick to react to the survey. The mass tabloid ‘Blick’ of Zurich was in the vanguard of voices asking if this was a recipe for social peace. The ‘Bund’ newspaper of Bern commented, “The climate could not be more explosive”.

The question of executive salaries has also been the subject of a one-day conference in Lausanne, western Switzerland. One of the organisers, executive search consultant Eric Denzler, said he didn’t think Swiss managers were overpaid.

“I think the right question would be to ask whether these executives are really skilled and that’s a question that’s never asked,” he said.

“Skilled” means that they fulfil the expectations that people have of them and achieve the budgets or business plans they have devised.

“That’s why more and more you see people who are paid not only with a salary but also with all sorts of features like a bonus or stock options. You never ask whether the shareholders are overpaid, and if the company is working very well, shareholders get a fair share of the profit,” Denzler told swissinfo.

Barry Wilson, the president of the international division of Medtronic, one of the world’s leading medical technology companies which employs some 400 people near Lausanne, told the conference that the salaries’ debate was going on in many countries because some executives were extremely highly paid.

“We are operating in a very competitive environment for global executives and it is not surprising that the debate has come over to Switzerland where we’re competing with other countries and other markets for key executives,” he told swissinfo.

Although warning that executive salaries should not be excessive, Wilson also said that – as a senior company official – he has to make sure they are attractive.

“When I’m comparing the salaries of European managers who work for me, I have to compare throughout Europe to see what is an appropriate salary to pay them because they could leave Switzerland and go to Britain, Holland, Germany or Italy in the healthcare industry. So I have to make sure that if I’ve got a very good person, I’ve got to pay that individual competitively,” he said.

Denzler says that executive selection is increasingly based in Switzerland on skills, and no longer on criteria such as politics, association (who you know) or tenure.

“I think we are heading towards a new concept of price/earning ratio for executives,” he said.

He added that it would be an interesting exercise to compare what executives receive in different companies as a percentage of the firms’ results.

“That would give a much more exact picture of what is a correct compensation than the discussion today in which people say that such and such a person is paid too much. That doesn’t mean a thing,” he said.

by Robert Brookes