Tags: CEO | pay | Switzerland | jobs

The Assault on CEO Compensation

Thursday, 21 Nov 2013 07:23 AM

By Neal Asbury

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Professional sports players are usually paid based on performance. The better they play, the more money they make.

In the business world, CEOs are usually compensated based on the performance of their company. The better the company performs, the more they are paid in salary and stock options.

One big difference is that professional sports teams work with a salary cap, which determines how much money they can spend on their players.

In the business world, most CEOs don't have a salary cap (although some publicly traded companies have limits of executive compensation), so their salary and benefits reflect the profitability of the company. They are paid for their contributions.

The story that is seldom told is that before CEOs make a lot of money, they had to build their company. As a CEO myself, I often went without a paycheck so I could put more money back into the company to promote growth, hire and plan for the future. That's the burden — and reward — of leadership.

It's also the foundation of free enterprise.

Now a story out of Switzerland has the public voting to limit executive pay to 12 times that of a company's lowest paid worker. It's known as the "1:12 initiative."

One of the driving forces behind the initiative, according to The Wall Street Journal, is David Roth, president of the youth wing of the Swiss Socialist Party. This shortsighted approach is just another example of why socialism fails and why even when once communist countries embrace the principles of capitalism it improves the standard of living for its country and its citizens.

A CEO of a large Swiss company laid it on the line, telling The Journal that each job at corporate headquarters creates seven to 11 jobs in the broader economy, which helps unemployment remain low in Switzerland.

In today's rocky global economy, what possible advantage could be gained for giving the government the power to determine how much a CEO can earn? It undermines the very tenets of free enterprise.

Already, many companies are threatening to leave Switzerland if this vote goes through. So now Switzerland could lose the prestige of being the headquarters of some of the world's most iconic brands, and taking with them thousands of high-paying jobs.

According to The Journal, "Switzerland's government has cautioned that passage of the 1:12 initiative might lead to a shortfall of 600 million francs a year for pensions and unemployment insurance funds because of an expected fall in social-security contributions."

This would devastate Switzerland's economy, as it would any economy.

There is a growing groundswell in the United States of people who think some U.S. CEOs are making too much money. To be fair, there are some CEOs who are grossly overpaid for what they bring to the company. But their compensation should not be determined by the government. Instead it should be determined by an internal compensation committee or board. That's competition and free enterprise.

As we've already seen with the Obamacare debacle, our government is a very poor steward of money. So to allow them to determine the pay of our CEOs would be a Twilight Zone episode. Worse, we've seen them bestow billions of dollars to their cronies with almost no oversight, and reach into our pockets with unnecessary regulations and spiraling taxes. With not a single member of President Obama's inner circle with any actual private sector business experience, let us pray that they never get the power to have a voice in managing any U.S. company.

The Journal article sums it up with a quote from Johann Schneider-Ammann, head of the Swiss department of the economy, education and research: "Social harmony can't be achieved by government interferences in setting salaries. We have a taxation system and other social checks to achieve this."

The greatest national security threat that we face is the lack of jobs, and CEOs make it possible for thousands of people to be employed. But when the government interferes with a company's financial stability, such as the economic calamity created by the Obama administration and Obamacare, it threatens our free enterprise system — the foundation of our very existence.

Switzerland is a warning that we need to be vigilant so that Obama's wealth redistribution doctrine doesn't lead to a version of the 1:12 initiative here and further erode our economy.

We must allow companies the freedom to grow and create jobs, without the shadow of the government forcing upon them the sordid tenets of socialism.

© 2014 Moneynews. All rights reserved.

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