The European Union seems close to making a law that limits excessive bonuses. Few will disagree that the finance industry needs to be curbed, and the intention is good. The problem is in the method proposed; no matter how carefully it will be worded (the text apparently runs to over 1’000 pages), they’ll always be someone smarter to find a work-around.
The wiser and far more concise solution problem was proposed by the Swiss entrepreneur Thomas Minder in the initiative he made back in 2008. Here is an English translation, which I made from the official German and French texts:
The Swiss Federal constitution of 18 April 1994 is completed as follows:
Article 95, alinea 3 (new)
In order to protect the economy, private property and shareholders and to ensure sustainable management of businesses, the law requires that Swiss public companies listed on stock exchanges in Switzerland or abroad observe the following rules:
- Each year, the Annual General Meeting votes the total remuneration (both monetary and in kind) of the Board, the Executive Board and the Advisory Board. Each year, the AGM elects the President of the Board or the Chairman of the Board and, one by one, the members of the board, the members of the Compensation Committee and the independent proxy voter or the independent representative. Pension funds vote in the interests of their policyholders and disclose how they voted. Shareholders may vote electronically at a distance; proxy voting by a member of the company or by a depositary is prohibited.
- Board members receive no compensation on departure, or any other compensation, or any compensation in advance, any premium for acquisitions or sales of companies and cannot act as consultants or work for another company in the group. The management of the company cannot not be delegated to a legal entity.
- The company statutes stipulate the amount of annuities, loans and credits to board members, bonus and participation plans and the number of external mandates, as well as the duration of the employment contract of members of the management.
- Violation of the provisions set out in letters a to c above shall be sanctioned by imprisonment for up to three years and a fine of up to six years’ remuneration.
Article 197 chapter 8 (new)
Pending implementation of the law, the Federal Council shall implement legal provisions within one year following the acceptance of article 95 alinea 3.
The genius of Minder’s text is that instead of setting limits on bonuses, it simply forces shareholders to approve them every year, whilst ensuring that it’s the real shareholders that vote.
We’ll be voting on it this weekend (I already voted for) and it seems that it has a good chance of passing. If it does,
Minder’s text was passed on the 3rd of March 2013 by all the counties and an astonishing 67.9% of the voters. Of the 183 initiatives submitted to the vote in Switzerland since 1893, only 21 (8.7%) have been accepted. 67.9% is the 3rd highest score ever obtained by a popular initiative. The highest score, 83.8%, was obtained in the 1993 initiative to make the 1st of August a National holiday; hardly ground-breaking. The 2nd highest score, 71.4%, was for the 1921 initiative on international treaties.
I predict that the concept will gradually be adopted globally and Thomas Minder will be recognised as the father of a new era in corporate governance.
1. It is difficult to find an exact translation of Abzocker. Cheater, swindler, deceiver and liar are all close. Abzockerei literally means rip-off, but Abzockerei isn’t slang. Scam is another synonym.