Economy

Corporate Revolution: Switzerland Kisses Goodbye To The Golden Parachute

The good kind of "golden parachute" in the Swiss Alps
The good kind of "golden parachute" in the Swiss Alps
Laurence Boisseau

BERN – Switzerland may be set to become the world champion of shareholder democracy.

Swiss voters gave overwhelming approval to the popular initiative against excessive corporate compensation -- an initiative launched by Thomas Minder, an entrepreneur from the city of Schaffhausen. Some 68% voted in favor of Sunday's ballot measure, and each local canton received at least a simple majority of support for the new law.

Polls had shown that the text of the proposition had already convinced most Swiss voters even before the so-called “Vasella effect.” Three weeks from the vote, the country learned that president of pharmaceutical group Novartis, Daniel Vasella, was about to be granted a 72 million Swiss francs ($75.3 million) parting bonus. His refusal to cash in on the massive "golden parachute" wasn’t enough to appease popular anger.

Long trailing behind neighboring countries in terms of corporate oversight, Switzerland is now poised for a true revolution, ready to become a veritable model in shareholder democracy. Every year, the shareholders will - inconveniently for them - have to approve the salary of both the top tier of management and the executive board. Board members will also need to be reelected annually (as opposed to the previous three-year mandates), and on an individual basis.

Risk of jail time

Both parting “golden parachutes” and signing bonuses will be prohibited. In case of violation of the General Assembly’s decisions, the executives will face criminal charges that can be punishable by three years of jail time and a fine equivalent to six years of salary.

This text is binding, as it will be added to the Swiss constitution -- which is almost never prone to modifications.

“I’m glad that this struggle is over,” said Thomas Minder to the German-speaking Swiss TV channel SRF.

This Robin Hood of Switzerland's corporate world started his battle in 2002, after SwissAir’s 2001 downfall and the scandal of the 12.5 million Swiss francs ($13.2 million) signing bonus from Nestlé to its then incoming CEO Mario Corti.

Minder’s company, Trybol, specializing in cosmetics, was one of the airline’s subcontractors, and was denied payment at the time.

Now begins another battle as to how this popular initiative will be enacted and applied. Switzerland's Federal Council has one year to enact the specific conditions according to which this new constitutional amendment will be enforced. The regular legislative process seemed off the table, for the Parliament was too slow to agree on an indirect counter-proposal.

“We know how divided the Parliament is,” said Minder. “The Federal Chambers had bargained for years over the initiative and its counter-plan, before it was presented to the citizens.”

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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