Soaring executive pay starts to needle the Swiss

Switzerland, as everybody knows, is one of the richest countries in the world. The Swiss, as a result, have always shown an understanding and a certain sympathy for the role of business and the country’s big multinational companies.

But Swiss society is also intensely democratic and egalitarian. In turn, this is now making an increasing number of Swiss citizens uncomfortable with the widening gap between ordinary salaries and the heady pay packages of the country’s top bosses. The big Swiss banks and industrial multinationals are currently in fine fettle, churning out record profits and so helping the performance-related salaries of top executives to scale new peaks.

The total remuneration of the country’s five most highly paid bosses amounted to nearly SFr100m ($81.4m) last year, according to the Geneva-based Ethos investor foundation. Leading the big pay league is Novartis’s Daniel Vasella, followed by the heads of UBS, Roche, Nestlé and Credit Suisse in that order.

Most of these corporate heavyweights continue to argue that their packages by international (especially US) standards are still pretty moderate. That may well be so. Yet for the past few years – during the annual general meeting season – the chorus of shareholder protest has been growing steadily to the point that the big Swiss companies are finally taking notice.

Take the Novartis AGM this week. Shareholders gave Mr Vasella, the pharmaceutical giant’s chairman and chief executive, a rough ride over his pay package using words such as “arrogant” and “inappropriate” to describe his total remuneration – SFr21m according to the company, SFr44m claims Ethos.

Mr Vasella was nonetheless re-elected by an overwhelming vote to his dual chairman and chief executive roles. But the company also sought to appease shareholders by scrapping Mr Vasella’s “golden parachute” severance payments when he leaves the company – three times his annual salary, but five times in the case of a change of control.

His big local rival, Franz Humer of Roche, is also opposed to “golden parachutes”. But the Roche CEO (who was paid SFr16.7m last year) goes one step further by proposing to give shareholders at next year’s AGM a say over the size of executive salaries. Yet before anybody gets swept away by this burst of corporate virtuousness, the shareholders’ decision will be purely consultative and not binding. Moreover, since the founding families control two-thirds of Roche’s capital, the shareholders already decide Mr Humer’s pay.

That said, it does show how times are also changing in Switzerland. Executive pay has now clearly become a national issue Swiss companies can no longer haughtily dismiss as they have done in the past.

Short selling Germany

Whether it is tourism or wine – areas where the Germans excel – or explaining why manufacturing in such a high-cost but highly skilled country makes sense, Germany is often reluctant to puff out its chest.

Bizarre as it may seem, the current debate over carbon dioxide emissions among carmakers is another area where the German fear of extolling their successes rises. “We have not sold ourselves well as an industry. The trend in Germany is often to see ourselves very critically,” says Manfred Wennemer, chief executive of car parts supplier Continental.

On the face of it, the Germans seem the worst offenders on CO2 – they produce the biggest, fastest and most polluting cars. Yet how many people know that the lowest carbon dioxide-emitting car in the world is not Toyota’s Prius hybrid but DaimlerChrysler’s Smart? Or that Volkswagen has lower average emissions than Toyota?

But the Germans seem to be realising, finally, that they risk losing the marketing battle. Smart was advertised at this week’s Geneva motor show as the “CO2 champion”. Even Thomas Weber, Daimler’s head of R&D, admits that the person on the street probably thinks the Prius is more environmentally friendly.

But Mr Weber also sees a flip side to the current debate on CO2 – described by BMW, Daimler and Audi as “hysterical” – because it will ultimately help the Germans to show off their innovative solutions. Porsche, the worst emitter by far, has for example cut its emissions by 95 per cent since 1970.

But even Germans now concede they have been somewhat arrogant in the past. For too long the car industry has developed products that it thinks make sense rather than responding to customers’ demands.

Germany now needs to brush up its public relations act and fast. The current hysteria surrounding the CO2 debate will eventually die down, but carmakers should use the current publicity to highlight the innovations they have made, not only on the environment but in safety too. They also need to improve their responsiveness to consumer trends.

But the luxury car-making Germans should also underline consumer choice – if someone wants to buy a gas-guzzling Porsche let them but they should pay more for the polluting privilege.

China in low gear

Is China going to become the global hub for car manufacturing, just as it has for toys and T-shirts?

That is the view of Bank of Joseph Quinlan, America’s chief market strategist, who points to figures that appear to show Chinese production of cars overtaking the US last year and concludes: “China and the United States have changed lanes.”

It is certainly true that China’s car market has exploded from almost nothing a decade ago to the second biggest in the world last year. And a new generation of Chinese carmakers is planning its assault on the US and European markets.

Yet the numbers can be deceptive. The Chinese figures for car production include a large chunk of vehicles that are classified as light trucks in the US statistics. Take them out and the US is still well ahead. For all types of vehicles, US output of 11.3m outstrips China’s 7.3m.

Manufacturing costs for quality cars are not cheaper in China because the supply chains are still too shallow, wages are rising quickly and shipping huge fleets of vehicles to the US can be expensive.

China has a huge and fast-growing market but it will not be a major export base any time soon.

Staying in the shadows

Whether or not Brevan Howard’s listing of a hedge fund in London had been a huge success – and indications yesterday were that the fund management group would fall short of its goal of raising €1bn ($1.3bn) – it is questionable how many other funds will be tempted to follow it.

Even advocates of hedge fund listing concede that it will remain the domain of the biggest and highest profile fund groups. The attractions include the relative certainty and stability of so-called “permanent capital” – as distinct from the money invested in unlisted funds, which, although sometimes ring-fenced with penalty clauses and notice periods, can be withdrawn easily.

Listing ought to allow fund managers to invest in less liquid assets, and to diversify the register of investors away from funds of hedge funds. But the disadvantages for hedge funds are plentiful. To list – even under less burdensome rules – they have to offer investors at least some protection in the form of greater disclosure and higher levels of corporate governance.

But transparency can be the death knell for some fund strategies. Once a listed fund’s portfolio was revealed, competing managers could trade opportunistically against it. Perversely, the ability to invest in less liquid assets would then be undermined.

As one hedge fund manager put it this week, to take the step onto public markets “requires conviction and infrastructure”: in the current regulatory and market climate, only a few fund groups have enough of both to make it worthwhile.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from and redistribute by email or post to the web.