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08 April 2013
On March 3 2013 Switzerland voted in favour of an initiative against excessive salaries for board members and executives - the 'fat cat' or Minder initiative - with an overall majority of 68% and approval by voters in all 26 cantons and half-cantons.
Article 95(3) was added to the Federal Constitution, pursuant to which Switzerland must, within one year, enact new transparency rules and one of Europe's most rigid regimes on a full and binding say on the pay of board members and executives. The new article of the Constitution applies solely to Swiss public companies (ie, companies incorporated in Switzerland and listed either in Switzerland or on a foreign stock exchange). Swiss companies which are not listed and all foreign companies fall outside the scope of Article 95(3). In addition, voting by pension fund representatives for shares in Swiss listed companies held by pension funds will be addressed.
On the enactment of Article 95(3), the following will become mandatory:
Article 95(3) is not directly applicable. Instead, within one year (ie, by March 3 2014 at the latest) the Federal Council must adopt an interim ordinance to give direct effect to Article 95(3). Parliament will then debate and adopt a bill for the corresponding amendments of ordinary Swiss legislation with a view to replacing the governmental interim ordinance. According to the Federal Department of Justice, which is drafting the ordinance for the government, the transitional rules will be as follows:
Swiss listed companies are advised to be proactive in order to gather first-hand experience before the transitional ordinance is adopted. A consultative voting on the annual compensation report at the forthcoming 2013 AGM will allow Swiss listed companies to learn about the possible concerns of major shareholders, institutional investors and pension funds.
In addition, distance electronic voting, annual elections and re-elections of board members and members of the compensation committee can already be practised (unless the existing articles of incorporation of a Swiss listed company explicitly disallow this). The existing compensation and corporate governance policies and practices, existing contractual agreements with the board of directors and executive board members can be reviewed, and existing and new board and executive appointments can be carefully managed (eg, by suitable contractual reservations as to payment adaptations).
On adoption of the interim ordinance (set to become effective on January 1 2014), listed companies must amend their articles of incorporation for the 2014 AGM to adapt to the new rules (with which they must comply fully from January 1 2015).
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