Tuesday, November 19, 2013

Switzerland Is Trying To Limit CEO Pay

This article (via Manan Shukla) describes an effort in Switzerland to reduce CEO pay by imposing a 1:12 ratio on CEO pay.  CEO pay could not exceed  12 times the pay of the average employee.  At one time in the US the CEO of IBM stated that CEO pay should not exceed 20 times the pay of the lowest paid employee.  Of course, there aren't many executives in the US share that view.  CEO compensation between 1978 and 2011 grew by 725% while average pay only grew by 5.7% in that period.  It is estimated that CEO compensation is 231 times greater than that of the average worker.

The proposal in Switzerland has been attacked with a PR campaign which has turned popular opinion slightly against the proposal.  There is enough concern about the rapid rise in CEO compensation in Europe, however, to generate some political support for measures which gather some momentum.  Many believe the CEO is not only a problem of fairness but that it provides incentives to CEO's to manage the financial numbers that affect their compensation.  That is not always in the best interest of shareholders and other stakeholders in large corporations.  Compensation differentials also affect the functioning of our democratic institutions.  The super-rich are able to use their wealth to influence elections and they have a powerful incentive to limit the role of government tax policies.  The tax system has become less progressive in the US as income inequality has risen.

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