Executive Pay in Switzerland
It is important for those taking up a managerial or executive position in Switzerland to be aware of the current context surrounding executive compensation and the remuneration of top Swiss-based management staff.
Switzerland continues to be a favorite posting for international managers and top executive talent but compensation and perquisites of executives and the managerial class working in Switzerland continues to be a matter of debate and controversy among investors, media and the general public.
There is frequent criticism not only in the popular media but also among the financial community, that senior executives are overpaid. The financial investment community focuses on benchmarking against peers across Continental Europe or with the executive’s firm’s performance, and had remarked that some Swiss-based executives may be excessively compensated.
But mainly, the criticism of high executive salaries in Switzerland centers less on compensation amounts –most of which are largely exceeded by the earnings of stars like Schumacher or Beckham—and instead on the ratios of executive pay to employees.
Over the past 15 years in Switzerland, the ratio of executive pay to employees’ salaries has widened from approximately 40:1 to roughly 220:1. The most important factor weighing negatively on the public acceptance of executive pay in Switzerland is the lack of transparency in compensation, particularly the linkage of executive pay to performance.
Linking executive pay to performance is a non-trivial task; it can be difficult to define adequate measurements of achievement and performance.
In Switzerland, as elsewhere, executive compensation has multiple aspects - dividends, options, pension contributions, golden parachutes, company car, club membership fees– which can be complicated to tie directly to a specific performance measurement. Sometimes cash value of a perquisite may be secondary to its symbolic meaning.
In Switzerland, another cultural aspect of executive compensation assessment is the widespread assumption that performance can be readily articulated. Swiss firms tend to use financial, operational and accounting indicators such as ROI and ROE as criteria for executive pay decisions.
Under the assumption that market-derived performance indices are less vulnerable to manipulation, some Swiss-based firms have substituted capital market measures for accounting performance.
The key measure of top executive performance in Switzerland is creation of shareholder wealth. But some organizations do not think that generating shareholder value is a good enough measure of a top executive’s performance. In Switzerland, the quality and credibility of people management is receiving increasing emphasis.
In Switzerland, executive compensation tends to be determined by a board of directors, or a board’s remuneration committee. In addition to internal corporate criteria, these bodies usually base their decisions on compensation surveys broadly available in the marketplace.
According to Swiss executive recruiting agencies and top management headhunters, market forces are still the driving elements influencing decisions on executive pay and this is expected to continue.
In Switzerland, executives often have an important influence on their own compensation package. Personal relationships between CEOs or other executives and board members can play a large part in deciding compensation packages. It is very common in Switzerland to find executives reciprocally sitting on each other’s boards.
An examination of survey published on executive pay shows that senior executives receive larger compensation packages in absolute terms in the USA, the UK, and several other western European countries. To appreciate the premium position occupied by executives and managers in Switzerland it is necessary to examine purchasing power, and take into account tax, social security deductions and local cost of living. Further – and here one begins to venture on somewhat subjective terrain—it necessary to consider ‘quality of life.’
The average remuneration in Western and Eastern Europe, correlated to a purchasing power index, amounts to 3.6; executives in Switzerland score highest with 6.4, ahead of peers in Germany (5.6), Austria (4.6), the Netherlands and Spain (4.3), Ireland and the U.K. (4.2), France (4.1) and Italy (3.7).
C-E’s own surveys confirm the view that executive pay in Switzerland is among the highest in Europe, even if it clearly lags behind levels in the U.S.A. This said, statistics are obviously drawn only from publicly listed companies.
Until recently in Switzerland, political, legal and social pressure on executive compensation has been less strident than in other European countries. Switzerland is the European country that has by far the highest proportion of foreigners on boards of directors and executive committees.
