This is pretty interesting. On Sunday, voters in Switzerland will be casting a ballot to determine whether executive compensation should be shackled to the wages of the lowest earner in a a given company. Known at the "1:12 Rule", the highest paid executives in a company would be allowed to earn no more than 12 times the annual income of the lowest paid worker in the same company. To put it in US banking terms, it would be like limiting Lloyd Blankfein's all-in comp to $312,000 because some poor bastard in the mailroom is only pulling down 26 grand a year.
The funny thing is, this referendum has a halfway decent chance of passing in Switzerland, where individual voters have much more power than they do almost anywhere else on Earth, and there is a palpable dislike for the widening wealth gap between the highest paid and the lowest paid.
Despite its high standard of living, Switzerland is a generally egalitarian country, increasingly unhappy with rising wealth inequality as wages of executives balloon while those of low-skilled workers lag.
"After the Second World War the growth of salaries and wealth was more or less parallel,"JUSO President David Roth told Reuters. "In the last ten years one small part of society took the big profits and the majority ... had less in their pockets."
The trend is catching on all across Western Europe. Spain is trying to enact the same policy, and French president Hollande is pushing a 20:1 ratio on companies where the French government has an ownership stake (which is pretty much all of them in one fashion or another). There are even calls for similar schemes in the US.
I'm just playing Devil's Advocate here, but which do you consider the more likely scenario in the event a measure like this passes: that CEO's will be willing to accept a fraction of their current comp, or that the wages of rank and file workers would increase dramatically? I'm not saying I'm in favor of something like this (because I'm certainly not), but it strikes me that this sort of social engineering might actually work.
Who would get hosed? Shareholders. Employees would love it because they'd make more money. This, in turn, would likely lead to better customer service, so customers would be happy. But shareholders would get the shaft because the bulk of the profits they've been collecting would be paid out in wages.
And then there's the obvious question that always comes up in this debate: how do you justify paying one person 450 times the salary of another person? Can you really make the case that Person A is 450 times as valuable as Person B? (Don't even attempt it, because you can't.) So at what point does the earnings gap become abusive? Is it 12:1? I'm pretty sure it isn't. 20:1? I don't think so. 100:1? Now you're getting closer.
What do you guys think? Would the world be a better place if the highest earners made no more than 12 times the lowest earners? Would it affect your work ethic? If not for something like this, how do we solve the wealth inequality problem?
It'll be interesting to see what comes out of Geneva this weekend...