CEO salary caps: The Swiss voted them out, but could they work?

Chief executive salaries are staggering, so it shouldn’t be a shock that a move to limit their salaries to 12-times that of their lowest paid employee was put to a national vote.

Switzerland voted a resounding 65.3% to defeat the left-backed move, which according to a story in The Australian was heavily outspent by the business lobby.

Martin Nally, managing director of HR services company HR Anywhere, told SmartCompany a chief executive’s salary is a complex formula, bringing in performance-based incentives which benefit the company if successful. He says the free market is the best way of determining CEO remuneration.

“One of the reasons why there was quite incremental growth in CEO pay was that it had been made public, so there was competition,” he says.

“If organisations were able to keep [salaries] confidential, there would be a standard of reasonableness.”

Nally says chief executives may work the same hours or be just as exhausted at the end of the day as other staff, even managers, but the role carries more responsibility.

They need to lead, set direction, meet compliance for government and legal obligations, and be accountable.

“You’ve got to pay someone to take on that responsibility,” he says.

Swiss voters said they didn’t think the salaries were fair as some chief executives earned 194-times as much as their lowest paid employee, but they didn’t think a state imposed salary-cap was the answer.

One conservative Swiss politician said the rules, if voted in, would have made Switzerland the “North Korea of Europe”.