Audit, Compliance and Risk Blog

The Newest Say-on-Pay Jurisdiction is…Switzerland!

Posted by Jon Elliott on Thu, Mar 07, 2013 compensation packages can become sources of tension between directors and shareholders in companies. In the U.S., state corporation laws authorize directors to fix their own compensation and to determine suitable compensation for the officers of the corporation, while federal income tax rules require shareholder validation before the company can deduct individual compensation exceeding $1 million ($500,000 for participants in the Troubled Asset Relief Program (TARP)). U.S. federal laws have expanded requirements for shareholder “say-on-pay” votes, but only require that the votes themselves be advisory, not binding. The 2009 federal stimulus bill requires participants to offer non-binding shareholder votes, and the 2010 Dodd-Frank Act requires all public companies to do the same. (See my recent blog on Securities and Exchange Commission (SEC) rulemaking).

In March 2013, however, the most aggressive say on pay jurisdiction in the world has suddenly become Switzerland. On March 3, roughly 68% of Swiss voters approved a people’s referendum against “corporate rip-offs” that provides for binding say-on-pay votes in Swiss public companies. The Swiss federal constitution has been amended to require these companies to provide for an annual vote on the total sum of all consideration (money or value given in kind) to be paid to the management board, the company management and the advisory board. The amendments also bar board members from receiving severance or other compensation, advance payments, bonuses for acquisitions or sales of firms, or advisory or employment contract from other companies in the corporate group. Violations are punishable by 3 years’ imprisonment and forfeiture of 6 years’ salary. However, the initiative also provides for drafting of detailed implementing requirements.

Initial responses are predictable, with business associations aghast and shareholder activists ecstatic. However, this new Swiss plebiscite will renew international attention to say-on-pay issues, and warrants new consideration by companies’ governance teams worldwide.

Implementation Checklist

To help you organize your activities, consider the following checklist, which is designed to track U.S. SEC requirements but raises issues of interest to publicly traded companies, and even to privately held companies with shareholders outside the controlling majority.

  • Does my company’s Board of Directors include a standing Compensation Committee?

  • How many Committee members are “independent” of the company and its management?

  • Does the Compensation Committee have authority to hire outside compensation and legal advisors, and to hire advisors without clearance by the full Board and management?

  • Does the Committee actually hire outside advisors (every year, periodically, occasionally/as needed), and does it ensure that any such advisors are “independent”? 

Has the Board established formal policies governing the design of executive compensation programs?

  • Were these policies developed by:

    • The Compensation Committee
    • Some other Board committee
    • Management or other inside personnel
    • Outside advisors
  • Have these policies been reviewed to assess whether they ensure that executive compensation is tax deductible?

  • Do these policies include incentive-based compensation (which may include stock options), based on the company’s financial results and other factors?

  • Do these policies include claw-back provisions, triggered by findings of wrongdoing by the executive (and/or the company), financial adjustments and/or other factors?

  • Do these policies include post-severance provisions (e.g., “golden parachutes”), including those that may be triggered by changes in control of the company?

  • How often are these policies subject to formal review and possible revision?

Does the company report its executive compensation program:

  • To shareholders

  • To the public (in compliance with applicable requirements, such as SEC, if applicable)?

Does the company provide shareholders a formal “say-on-pay” vote on these matters?

  • Is the vote:

    • Advisory
    • Binding (i.e., as shareholder ratification of the terms)
  • Has such a vote been held?

Where Do I Go For More Information?

As of this writing, the Swiss government website does not yet provide an official translation, although an article posted to Wikipedia provides an unofficial version:

More generally, “say on pay” information is provided by a variety of sources, including the following:

About the Author Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 25 years. He was involved in developing 16 existing products,including Workplace Violence Prevention: A Practical Guide to Security on the Job,Securities Law and Directors' and Officers' Liability.

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at:




Tags: Corporate Governance, Business & Legal, SEC, Employer Best Practices, International, Accounting & Tax