Capping CEO Pay in Switzerland-UPDATED

On November 24 the Swiss will vote to add a CEO pay restriction to the nation’s constitution. If 50% of the voters affirm, then CEO pay will be capped at 12 times that of the lowest paid worker in a company. The logic has simple emotional appeal–no individual should earn more in a month than another individual earns in a year. But the measure is devoid of logic.

First, notice the ease by which the Swiss constitution can be changed. The purpose of a constitution is to create principled and grounded law that is not subject to the whims of the masses. Changing a constitution should take some time and contemplation. If not, it offers no clear, lasting protection to anyone.

Second, notice the month-to-year comparison. Why is 12:1 the correct ratio? Why not 52:1 for a week-to-year comparison or 4:1 for a quarter-to-year comparison? Like most leftist economic policies, the numbers are merely arbitrary, designed to trigger an emotional response.

Third, notice the stated purpose of the “1:12 Initiative for Fair Pay.” As with similar measures in the US, its proponents say they want to address a “growing wealth gap” in Switzerland. Of course, their remedy is to trim the top, not raise the bottom.

Finally, notice the disregard for economic ramifications. The CEOs of 3 Swiss companies–Roche, Nestle, and ABB–earn 261, 238 and 225 times the salary of their lowest paid employee. These executives earn market salaries for their contributions. Some might think they make “too much,” but if this measure passes Swiss firms will either relocate their headquarters elsewhere or be stuck with less competitive executive talent. Neither outcome does anything for the lowest wage earners and both would have a negative impact on government tax revenues.

This vote reminds me of the time when candidate Obama was asked if he’d favor an increase in the capital gains tax even if the evidence was clear that doing so would reduce tax revenues. He answered in the affirmative, arguing that it’s just a matter of “fairness. It’s a clear red flag when legislators are openly willing to adopt policies that hurt their constituents in the name of “fairness.” The real issue in such instances is not fairness, but envy.


2 thoughts on “Capping CEO Pay in Switzerland-UPDATED

  1. Tying CEO’s pay to that of the lowest paid worker doesn’t make sense economically. However, the firm’s board members should consider weather high CEO pay is really justified? Does the company see extremely high returns as a result of the CEO’s high pay? It is not always the case (see JC Penney and the former CEO, Ron Johnson).
    CEO pay started skyrocketing about 20-25 years ago. Are the current CEOs really super-duper “talents” that generate insanely great results compared to CEOs in the 1970-80s?

  2. There’s a way around this type of law anyway. Fire the low wage workers and outsource all of the low skill jobs to other companies. Let the Asians make your products for less anyway.

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