Not a Real Fix

03.04.13

Vengeance Still Isn't Good Policy

Video screenshot

On Sunday, 68% of Swiss voters approved a plan that would give shareholders the final say in awarding an executive’s pay package. Companies would also no longer be allowed to give bonuses to incoming and outgoing executives. These new restrictions are some of the toughest seen anywhere, and carry a penalty of up to six years of salary and 3 years in prison.

The passage of this referendum comes only days after the European Union agreed to cap executive bonuses, which I described as a policy of revenge, rather than actual business reform. This referendum is no different and is literally the result of a personal vendetta.

The outcome of the referendum was a triumph for Thomas Minder, an entrepreneur and member of the Swiss Parliament…who turned a personal fight against the management of Swissair, the flagship airline that collapsed in 2001, into a nationwide referendum against “rip-off merchants”…

Mr. Minder started his campaign after his family-owned business came close to bankruptcy because it had been a supplier of toothpaste and other body care products to Swissair, the airline that was grounded in October 2001.

While Swissair had run out of money, it still managed to pay an advance earlier that year of 12 million Swiss francs (about $9.6 million at the time) to a chief executive, Mario Corti, who then left shortly after the airline’s collapse.

There is certainly a need for regulation policy changes. Capping salaries may be a nice feel-good policy, but it will not do much to solve the real problems that caused the Great Recession.

[The video, via the Financial Times, discusses how caps on executive pay and bonuses have become immensely popular in Europe. Do these types of regulations really solve anything?]