
Swiss salary cap fails at ballot box - alternize
http://www.swissinfo.ch/eng/swiss_news/Salary_cap_fails_at_ballot_box.html?cid=37362410
======
brockers
Ben & Jerry's used to have a company policy that limited the pay of top
employees to 5x an entry level employee. Of course it was dumb-foundingly
stupid and they ultimately had to drop it when they were unable to find a CEO
capable of managing a $75 million dollar company for $88,000 a year. The
company suffered from mind-boggling mismanagement as some positions remained
unfilled for years and were then often filled with grossly incompetent hires
who were willing to work for such pay.

We no longer live in a manufacturing economy. In service industries the value
of an employee is almost entirely reflective of their responsibility and/or
the amount of money they bring to a company. Most of you work in software...
how much more valuable is a GREAT engineer vs a mediocre engineer... or an
awful engineer?

This is childish sophomoric ideological baloney based on jealousy, not on
need. How many Swiss do you know that are dying of starvation or lack of
health care? The world bank says the average income in sub Saharan Africa is a
little over $1,300 a year. Maybe we should tie all out incomes to a maximum of
12x THAT number. Would that make the world more fair? Would that actually help
anyone in Africa? Would it help economic development or encourage more people
to start businesses?

It is hard to see this stupid legislation as anything more that rich people in
rich countries bitching that someone's Bentley is bigger than their Mercedes.

~~~
dnautics
how about we let the citizenry do whatever we want and force the politicians
to take a net salary that is 12x the sub-saharan africa value?

~~~
rmc
Because then politicians would be considerably more likely to accept bribes,
and only the uber rich, upper class, indenpendently wealthy people would be
able to be politicians.

The UK used to not pay MPs. In the 19th century there were working class
movements for politicians to be paid (
[http://en.wikipedia.org/wiki/Chartists](http://en.wikipedia.org/wiki/Chartists)
), so that working class people would be able to stand in parliament.,

~~~
dnautics
_Because then politicians would be considerably more likely to accept bribes,
and only the uber rich, upper class, indenpendently wealthy people would be
able to be politicians._

But that happens anyway. Look at the "socialist" president of France. Four
houses (three holiday homes on the riviera), millions of euro personal
wealth...

------
smtddr
_> > The aim was to reduce the salary gap to a 1:12 ratio – in other words to
limit the salaries of top executives based on the annual minimum wage of the
lowest paid employee within the same company._

I don't know how the law works in Switzerland, but as a hypothetical top-exec
in an American company I can think of a way to screw over the little guy. I
would not hire anyone below a certain salary range. I'd have those jobs filled
with contractors; technically not employees. Thus defeating this law. And as
an added bonus I suddenly don't owe a bunch of people health-care benefits
either.

~~~
rtpg
Actually if you have "single client" contractors a lot of labor laws will
grandfather those employees as "real" employees, and you'll have a lot of back
taxes and they'll end up in your employee register.

It's exactly to avoid this sort of exploitation. A lot of people don't seem to
know about labor protections, unfortunately employees are just as misinformed
of their rights as business owners are.

~~~
Tohhou
Require in the contract that you are not their only client, but lawyer it
well. "We only work with contractors with a diverse set of clients as we
believe that diversity promotes excellence."

Create buffer companies for those contractors to also work for indirectly for
you if necessary. You might still have to pay some taxes, but you won't have
the same problem as the Swiss salary cap is trying to prevent if it were
implemented.

There will always be ways to exploit systems. You see it as exploitation, but
those running the companies see it as necessary to compete.

~~~
rtpg
all those extra layers are going to end up making it _more_ costly in some
cases.

Also, parts of contracts can be invalidated. Just because you put something
like that in the contract doesn't mean you're not violating labor laws.

Some jobs make more sense to be outsourced, in which case contractors will
usually already exist and offer "reasonable" prices that will be cheaper than
having a full-time employee around.

Other times it doesn't make sense, but employers will try and convince
employees to become contractors, so that a lot of employee taxes end up coming
out of the employee's side of things. Of course, the employee thinks that this
is necessary to keep their job. The construction and taxi industries are very
bad at this. It's exploitation, plain and simple.

~~~
Tohhou
I agree that min/maxing is easily exploitation, but it's also what those
companies see as necessary to compete, and it is what high relative fitness
companies do to not fail. One company gets a competitive advantage from doing
perfectly legal activities which can allow them to edge out their competition
from the market. See: Walmart.

------
lxmorj
It's fairly ignorant to think it's impossible for one employee to be worth
more than 12 of another. For example, I imagine Drummond (Google's CLO)
provides far more than 12x the value of a new hire.

~~~
rayiner
You're making a couple of assumptions:

1) The value of employees can be measured individually. Say you've got 100
assembly line workers. What's the value of losing an assembly line worker?
Almost nothing. What's the value of losing all the assembly line workers,
divided by 100? Pretty big number! In the U.S. we tend to define "value
generated by an employee" in terms of "marginal cost of replacing the worker"
but that's arbitrary.

2) That renumeration should be tied to value generated by the individual
employee.

~~~
KaoruAoiShiho
2) You're saying remove the supply of part of the equation? By this logic my
iphone should cost $100,000 because it generated that much value for me. Or I
should've paid my accountant closer to 50k instead of the 1k I paid him
because that's how much the penalties would've been.

~~~
rayiner
I'm saying that its an arbitrary choice for a society to allow companies to
base compensation on supply and demand. As soon as you institute law to keep
laborers from occupying factories and taking them over, everything subsequent
is arbitrary and can be chosen to achieve whatever social goals you want.
Supply and demand is not some law of nature. Its a phenomenon that emerges in
particular legal regimes.

~~~
brockers
Supply and demand is a economic model that exists in ALL economies that have
finite resources and free exchange. The only ways to overcome supply and
demand in the long run (as even the law of gravity can be overcome in the
short run), is to either limit free exchange by force or have access to
unlimited resources.

------
lambda
The more interesting referendum that is still pending in Switzerland is the
guaranteed monthly income referendum. There is another pending referendum, as
yet unscheduled for vote, about paying every Swiss citizen a guaranteed
monthly income of 2500 CHF (~$2755).

The guaranteed monthly income has long been a proposal for getting rid of a
whole host of complicated welfare schemes, which sometimes have perverse
incentives that prevent you from getting back to work as they go away if start
earning money. The idea is simple; just give everyone a certain basic amount
of money, no matter how poor or wealthy.

It would be quite a bold move if Switzerland actually implemented it. I have
my reservations, but traditional need-based welfare has so many problems, it
would be interesting to see if such a dramatic change would actually work.

~~~
patatino
I can tell you this will get like 80% no votes. We voted two years ago if we
want 6 weeks of vacations instead of 4 resulting in 66% no votes. Swiss people
like to work. We are raised with the believe that work is our strongest asset.

I talked to a lot of people about this topic. It's hard even to find one who
might consider it even remotely.

~~~
brownbat
This seems orthogonal to how much the Swiss like to work once you consider it
as a more efficient replacement for existing benefit systems, rather than
adding a new benefit.

I guess electorates are bad at understanding opportunity costs though, so they
might vote for a more expensive version of something they don't like, to
prevent appearing to support the less expensive version of that thing.

------
allochthon
American here, watching from afar. I personally do not mind the socialist
overtones of the measure. I think a big problem was that it aimed for an
unrealistic ratio (1:12). A ratio that was closer to existing practice might
have been more tactically effective. If at first you fail, try, try again
(somewhere else)!

What I really like about the 1:12 idea is that a more practicable version of
it would put in place an incentive for self-interested and self-serving execs
and board members to look after the wellbeing of employees in a more
substantial way than the "career advancement" programs and similar palliatives
that are currently fashionable. At the moment there are few real incentives in
place for companies to look after employees, and this feeds into the ghastly
and unseemly wage inequality that we're seeing.

Obviously there would be an ongoing game of closing loopholes, but that's
always been the case with things like taxes, so the difficulty of implementing
something like this is not a showstopper in my mind. The worries about
talented execs leaving in droves seem to me to be speculative; if anything, I
wonder whether companies might benefit from the flight of execs who are there
primarily for the extremely generous compensation.

~~~
mtgx
Probably should've been more like 1:20 or 1:30.

~~~
alternize
"in real life", it would have been closer to 1:21 actually due to the bill's
proposed salary span calculations:

\- calculated based on hourly rate instead of monthly salary

\- bottom is defined as the top hourly wage of the bottom 10% wages (1:12 =>
~1:14)

\- bottom wages: 40hrs/week vs top wages: 60hrs/week (~1:14 => ~1:21)

one pro-bill study therefore calculated only 2500 persons would be affected;
their cut salaries would be almost entirely spent on new jobs; only minor
insurance/tax losses ; and no company would leave Switzerland - all of which
was wishful thinking at best.

------
Pirate-of-SV
"The aim was to reduce the salary gap to a 1:12 ratio – in other words to
limit the salaries of top executives based on the annual minimum wage of the
lowest paid employee within the same company."

Can't you get around that by having a company owning smaller companies? Kind
of like a corporate franchise.

~~~
mobweb
I'm sure smart people could've come up with hundreds of ways to get around
this new law if it would've been accepted. It would've probably turned into a
cat-and-mouse game where the lawmakers would have to keep catching up to new
loop holes found by corporations. This is most likely the reason this
initiative failed. Most of the people I talked to here in Switzerland that
voted against it said they like the idea in theory but it would be pointless
to commission the government with trying to limit salaries.

------
skylan_q
Let's say that this passed and became law. With this law in effect, why would
I want to work as an executive in Switzerland when I can get much better pay
elsewhere?

~~~
allochthon
Because you like living in Switzerland, you love what you do, you make
generous compensation and you add value to the company. Quite simple,
actually.

~~~
fennecfoxen
Right-o. So we're mostly Americans here, at least more so than we are Swiss:
let me use American figures.

Assume minimum wage of $7.25/hr, equivalent full-time salary of $14,500/yr.
You're the CEO of a firm doing labor-intensive business, with a large number
of minimum-wage employees and low-ish profit margins (they tend to go
together) so that raising wages would mean swift bankruptcy. Your maximum
salary is now $174,000. Which is not a bad rate of pay, but it's not a _really
really good_ rate of pay. Heck, I've made that much before (2010, when the
market un-crashed and my stock options were actually worth money).

You used to make more, so you own your little chalet, and you've got a nest
egg of $4.5 million. You make about $175k/yr off the stock market alone.

You love what you do... but do you love it more than a full-time job skiing in
the Swiss Alps and living off savings?

~~~
phlo
While Switzerland doesn't have a hard minimum wage, the reasonable minimum is
around triple your figure or CHF 20 ($21) per hour.

Lidl (a chain of deep-discount stores) recently ran a campaign touting their
new minimum of CHF 4'000 per month. Some smaller businesses are a bit below
that, but you'd be hard pressed to find a position below CHF 3'500.

At half a million per year, I'm confident I could make ends meet.

------
patatino
I'm from switzerland. We voted yes this year on the "restrictions on fat cat
salaries" [1]. And this was a try to hop on the train on people's currently
antipathy regarding some top executives in our country. But there are like a
dozen ways to get around this. Fortunately we voted no (my opinion).

[1]
[http://www.swissinfo.ch/eng/swiss_news/Voters_accept_restric...](http://www.swissinfo.ch/eng/swiss_news/Voters_accept_restrictions_on_fat_cat_salaries.html?cid=35127030)

~~~
tonfa
Foreigner living in Switzerland, the fact that it seems to easy to get around
was what was bugging me most.

Do you have pointers to arguments pro and cons used during the campaign (in
particular why having the execs paid by a different company wouldn't work, and
how stock compensation was supposed to work in this scheme)? (in german,
english or french)

~~~
patatino
It's pretty easy to search for these arguments?

"in particular why having the execs paid by a different company wouldn't work"
this would work. you could just launch a new company with only the ones
earning the top salaries. Some say even a holding would suffice. But it looks
like this was covered.

Btw: my favourite poster during the campaign.. always got hungry :D
[http://www.handelsblatt.com/images/1-12-initiatve-in-der-
sch...](http://www.handelsblatt.com/images/1-12-initiatve-in-der-
schweiz/9114614/3-format3.jpg)

------
KaoruAoiShiho
Am I the only one who actually agrees with this law? In fact I'd go even lower
to a 1:5 or 1:3 salary ratio. This way all employees become independent
contractors who can set their own hours, they become emancipated from the
corporate ladder, they're forced to develop entrepreneurial experience,
network, form micro-companies that can work for multiple companies and develop
enhanced specialities, have low level workers become CEOs by virtue of
necessity, have less job security leading to increased competition and quality
among all levels of workers preventing the big company style slide into
mediocrity etc, etc.

Sounds like a much better system to me.

Edit: The analogy I see is like changing from owning your own servers to
moving to a cloud/aws-like pay for use model. This sort of change reduces risk
and unlocks innovation.

~~~
kudu
Of course it's a wonderful idea, and it would be even better if it applied to
contractors. I don't get the HN mindset of "He totally deserves billions of
dollars, he threw together a few photo filters and created Instagram! Those
poor kids can rot!"

~~~
iterative
I don't get the statist idea that it's any of your damn business to decide who
does and doesn't "deserve" a particular amount of money. Given that free
markets have lead to prosperity for average people on a scale that would've
been unimaginable a few short centuries ago, while people living in socialist
utopias like Cuba and North Korea continue to live in extreme poverty, those
who support redistributionist schemes like this are clearly the ones who want
to see poor kids rot.

------
overgard
This kind of law just invites hacks to work around it. It might sound nice on
paper but it will never ever work.

I actually agree with the spirit of it, but rather than provide a hard cap, I
think it'd make more sense to offer incentives instead.

I don't know exactly what the right incentive would be, but off the top of my
head I think you could offer tax breaks to companies that have lower salary
deltas, or allow executives to make as much money as they want but incentivise
investing that money in local swiss ventures.

------
logn
I think it should have failed. There are too many ways to get around this law
by just outsourcing labor, creating subsidiaries, issuing dividends, etc. I
think the better approach is marginal tax rates.

------
dsego
Maybe the inverse (or is it reverse?) is better, the lowest salary can't get
below 1/12th of the top salary?

------
znowi
I'm yet to see the day when a proposal that puts the rich at a disadvantage
gets passed.

------
mortyseinfeld
_Our fight will continue against fat cat salaries_

Yeah, that explains it all.

~~~
jstalin
Precisely. It seems it was more motivated by jealousy than any realistic
possibility of changing anything.

Instead of attempting to attack a _symptom_ of the growing gap between super
rich and the rest of us, they should be looking at underlying causes. Hint:
regulatory capture and central banking.

~~~
rayiner
It's utterly unsubstantiated handwaving to assume that income disparity
results from regulatory capture or central banking.

The basic mechanics of capitalist societies result in winner take all systems
in which having more money makes it easier to earn money. Divergence is
mathematically assured.

~~~
vdaniuk
You really can't claim that anything is mathematically assured without
providing formal proofs. Care to share them?

~~~
tptacek
It's intuitively obvious. Capital earns returns, generates more capital. If
you think of it as a distributed systems problem, it's obvious how it
converges.

~~~
vdaniuk
Right. I don't believe in using intuition to reason about complex social
systems.

------
iterative
Anyone who actually thinks this is a good idea should read Thomas Sowell's The
Quest for Cosmic Justice ([http://www.amazon.com/Quest-Cosmic-Justice-Thomas-
Sowell/dp/...](http://www.amazon.com/Quest-Cosmic-Justice-Thomas-
Sowell/dp/0684864630)), and everything else Sowell wrote, and Hayek and von
Mises, and Friedman and all the other economists who've long since debunked
this kind of idiocy . . .

