Notes on the Front

As the Government does its post-mortem on the Seanad
referendum, Switzerland is gearing up for a vote in November on a referendum
that is truly reforming.  It’s
called the 1:12 initiative. It proposes that monthly senior executive salaries
cannot exceed 12 times the pay of the lowest paid in a firm.  And it proposes that this be put into
law.  This is pretty heavy in a country which
is home to major financial institutions and multi-nationals.

Imagine the impact here. 
In the Bank of Ireland, the CEO Richie Boucher has a salary of €843,000
(no, that’s not a typo).  A bank clerk on
starting pay is approximately €22,000.  Under
this law one of two things would have to happen:  either Richie’s salary would have to fall by
three-quarters – to €264,000 a year. Or the starting pay would have to rise to
€70,250.  I leave you to decide which is
more likely to happen, if either.

But there is more going on in Switzerland than just a pay
ratio debate.  Earlier this year, the people voted
on a referendum that put controls on executive pay and gave shareholders’ more
rights over executive compensation. 
There has been growing anger over excessive salaries and the bonus
culture among Swiss companies.  The referendum
passed overwhelmingly despite the fact that opposing business lobbies
outspent the ‘yes’ side by 40-1. 

Now there are three more referenda coming down the
line.  First, there is a proposal to increase
the minimum wage to approximately €18 per hour.  Even in an economy with high living costs
this is a hefty rise.  Proportionately, for
Ireland, this would amount to somewhere between €11 and €12 per hour (using the
median wage as the comparison).

There is a referendum on a basic income – guaranteeing every
adult a
basic income of €24,500 a year.  
Again, even factoring in living standard difference, this is hefty sum,
designed to ensure a safety net for everyone. 

And then there’s that 1:12 initiative – designed to do two
things:  put upward pressure on low-pay
and downward pressure on excessive pay. 
As you can imagine, the business lobbies and the Government are
predicting all manner of plagues and pestilence if this referendum succeeds.  First off, there is the claim that businesses
will leave Switzerland if this is passed. 
There is something in that.  Multi-national
capital can be relatively mobile and many companies can punish a people for
taking democratic decisions that companies don’t like.  This is not the case for all companies,
though but the blackmail threat permeates the body politic.

A second argument put forward by the business lobbies is
that they will just avoid the law by breaking up their companies into smaller
units.  In this scenario, all the
low-paid will be put into one sub-company and the high-paid into another.  This will mean that each sub-company can
maintain the 1:12 ratio.  There is no
doubting that companies get up to all sorts of activities to avoid democratic
interventions  (the ever-vigilant WorldbyStorm
highlight Ryanair’s byzantine
employment contracts to prevent employees from collective bargaining).  However, this threat could be easily dealt
with by legislation that treats sub-companies that sell exclusively into a main
company as part of the main company itself.

Could such an initiative work here?  Eventually, but as always we must treat all
such initiatives as part of a process that must be rooted in today’s reality.  We have an extremely poor indigenous sector
and an over-reliance on foreign capital for value-added employment and
participation in the global market.  A
1:12 initiative would immediately become hostage to multi-national blackmail
(this will cost jobs, etc.) and with the economy still in a domestic-demand
recession such an initiative would understandably raise fears. 

However, this is not to say we put this on some shelf to be
dealt with sometime in some future (like Seanad reform).  A first step would be to require all
companies to publish their company accounts – profits, executive pay, etc.  Publicly-listed companies are already
required to do this but many private unlimited companies (Dunnes Stores) and
foreign branches (Tesco) don’t have to. 
There is no rationale why some companies are required to publish and
others are not.  Freedom of economic
information would be a first step in creating a more informed public and
efficient market relationships.

Second, we could take up the
idea put forward by ICTU sometime ago – that wages that exceed a certain
ratio should not be deductible for income tax purposes.  If, for instance, there was a 1:12 pay ratio
in a company, then the company would have to pay corporate tax on incomes that
exceed the upper threshold.  Taking the
Richie Boucher example, Bank of Ireland would have to pay tax on that portion
of his salary that exceeded €264,000.  We
may not be in a position now to stop excessive pay, but we certainly don’t have
to subsidise it with taxpayer money.

So we could take positive concrete steps.  However, let’s not lose the overall sight of what’s
happening in Switzerland.  There is a
democratic revolt against high pay and low pay: 
limitations on executive pay, increased minimum wage, and a basic
income.  There is a lively debate about
equality and inequality.  There are
concrete proposals and there will be votes. 
But even if the 1:12 initiative fails, that’s not the end of it. 

Of the many issues that we will need to address on the other
side of austerity (and there are many:  employment,
investment, indigenous enterprise development, universal public services,
social protection, etc.) there is the issue of reducing inequality, creating
strong social protection floors and raising income floors.

What the Swiss are debating is how to raise that floor while
toppling a few golden towers.  This is
what we should start debating.  And the sooner
the better.

Interesting Note: 
Despite all the blackmail threats and warnings of doom about the 1:12
initiative, recent polls
show it is too close to call:  36%
for yes, 38% for no, with the rest undecided.