Switzerland is the place to find top-end watches, posh ski chalets, banks with deep-pile carpets and multi-millionaire corporate titans like Daniel Vasella, the departing chairman of pharmaceuticals company Novartis.
You certainly would not associate the Alpine nation with populist revolts against excessive pay.There may be no Paris 1968-style protests on the streets of Zug. But next month there is to be a referendum on lavish executive pay.
Feelings against the Abzocker – loosely translated, bloodsuckers or fat cats – are running high.Novartis chose this highly-charged moment to award a £50m ‘golden gag’ to Vasella, in a six-year consultancy and non-compete agreement – enough to give bragging rights even in the company of former Barclays boss Bob Diamond.
Swiss revolt: After a storm of protest Daniel Vasella relinquished his £50million 'golden gag', commenting that many in Switzerland thought it 'unreasonably high'After a storm of protest Vasella relinquished the money, commenting that many in Switzerland thought it ‘unreasonably high’.
This raises a question at the heart of the whole top pay debate.
In the eyes of the average Swiss citizen, a payment that big is socially unacceptable. Yet even very large sums of money may not necessarily be ‘unreasonably high’ for a superstar executive.
Vasella is now free to work for other companies. He may generate substantial value for their shareholders. Novartis may be unable to hire anyone as good as him for less than £50million.
If so, then the loyalty bribe might not have been unreasonable after all – readers can make their own judgment on how likely that is.
The issue is whether there is a genuine problem with high executive pay and bonuses beyond populist outrage, and if so, what should be done about it.
Clearly the acceleration of top pay, particularly in the banking sector, has created social unease. Top-paid bankers and executives have pulled further away from the poor, but there is also a widening chasm between them and previously prosperous middle-class professionals, even in Switzerland.
It begs the question of why high achievers in some sectors, such as banking, are deemed to need large bonuses in order to function at their best, while others, such as surgeons and top politicians, are not.
How is it, for example, that the Bank of England manages to attract highly qualified traders to manage billions of pounds, for relatively modest rewards, but Barclays says it cannot.
Very high pay is justifiable if it is a premium for exceptional brilliance, but it rarely is. Often it is not capitalism at work but rent-seeking behaviour.
The market for top executives is not a perfectly competitive one, but is rigged by head-hunters, who circulate the same set of names to boardrooms, and by pay consultants with a vested interest in keeping rewards high.
Worse, the bonus entitlement culture has spread to parts it should never have reached, including the public sector.
In banking, it has percolated below board level to groups of favoured staff in dealing rooms, though not, of course, as far as front-line counter staff or call centre employees.
A report by the Centre for Economic Performance found that so-called 1,400 ‘bank code’ staff - those who have an impact on the firm’s risk profile – in 2010 typically received a salary and cash bonus of £568,000, plus deferred cash of £237,000 and equity awards of £873,000. The inevitable question is whether they can possibly all be worth it.
The study also found that, despite all the talk of clawbacks and reduced payouts, typical top banker rewards have not suffered as a result of bank failures or near misses. By 2011, they had captured a bigger slice of the pie than before the crisis.
I agree with banker-philes that political intervention, whether by Swiss MPs, the European Parliament or George Osborne, is likely to make matters worse.
But if large shareholders fail to stop the Abzocker, and if executives themselves fail to show restraint, that is exactly what will happen.Austen powersBAE Systems this week carried out the biggest ‘longevity swap’ deal so far in the UK; a transaction aimed at protecting the defence company against the risk its pensioners will live longer than expected.
In common with most other FTSE 100 companies, BAE’s pension fund is nursing a large deficit that has become even more swollen due to the side effects of quantitative easing.
More of these deals are likely; greater longevity is a blessing, but a huge expense for companies that are having to divert money into pension funds that could be used to fund growth.
As Jane Austen observed in Sense And Sensibility, through the admittedly rather grasping character of Fanny Dashwood: ‘People always live for ever when there is any annuity to be paid them.’