Switzerland: In Switzerland Golden Parachutes are out of date.

Switzerland

In Switzerland Golden Parachutes are out of date

After the Swiss voters have accepted a – polemically named –popular initiative against "rip-offs" by managers, art. 95 para. 3 has been inserted into the Swiss Constitution. Subsequently, the Federal Council of Switzerland had to create a new legal ordinance, which is now in force. According to this ordinance the shareholder's meeting of each company listed on the stock exchange has to vote on the salaries of the board members and the management, annually. The results are binding for the company.

In the future, the often publicly criticized termination payments (Golden Parachutes) will be illegal.

The Federal Council has also included sanctions in the ordinance. Thus, it is penalized with a prison sentence up to three years or a fine for knowingly accepting such illegal payments as a member of the board or a manager. This means that not only is it illegal to award such payments, but also to accept them.

Companies affected by this new ordinance now have the duty to change their bylaws and regulations accordingly. No later than after the second shareholder's meeting, following the date the ordinance came into force (1. January 2014), have these changes to be implemented. This will most probably be the case in spring 2016 for most companies. Furthermore, employment contracts including such illegal payments have to be changed within a two year period.

The new ordinance also restricts adequate termination payments. From a manager's point of view, this raises the question, how to compensate the now lacking financial security in case of an abrupt termination of the employment. In the past the Golden Parachute helped them to pay the bills until they started a new job. Now, they have to negotiate longer notice periods, etc. to fill the gap between jobs.