Inside Wealth

Swiss Rethink Relationship With World’s Super-Rich

James Shotter
Geneva, Switzerland
Alberto Incrocci | Getty Images

Switzerland and the world's super-rich have long been an item. The country's banking sector, famous for its centuries-old private banks such as Pictet, Mirabaud, and Lombard Odier, manages SFr5.3 trillion of wealth, SFr2.7 trillion of which is drawn in from abroad.

Meanwhile, many of the Alpine state's cantons, such as Zug and Bern, have become home to scores of the world's wealthiest people thanks to special tax regimes for rich foreigners who live but do not work in Switzerland.

Over the years, these special deals – which tax wealthy immigrants according to the value of their properties in Switzerland rather than their global assets or income – have lured in luminaries ranging from the racing driver Michael Schumacher to the singer Tina Turner and the Russian tycoon Viktor Vekselberg.

However, the zeal with which Swiss citizens on Sunday backed the curbs on executive pay is just the latest sign that Switzerland's relationship with the ultra-wealthy is beginning to change.

Not only was the referendum – which among other things bans golden hellos and goodbyes and gives shareholders a binding vote on executive pay – approved by each of Switzerland's 26 cantons, but the 68 percent approval rate was also one of the country's highest Yes votes ever.

The signs of unease go far beyond the referendum, the initiative of entrepreneur-turned politician Thomas Minder. In recent years, several cantons have got rid of their special tax regimes for wealthy foreigners: Zurich took the lead in 2009, and has since been followed by Schaffhausen, Appenzell-Ausserrhoden and Basel. Other cantons have tightened up their special regimes, even if they have not done away with them altogether.

Meanwhile, a recent debate about imposing immigration quotas on the EU was at least partly influenced by the steady influx of rich foreigners who have driven up house prices in places like Zurich and Geneva to a point where some Swiss can no longer afford to live there.

At the same time, increasingly forceful international efforts to crack down on tax evasion have made some of Switzerland's banks think twice before welcoming foreign wealth.

Switzerland Votes to Limit Exec Pay

These developments show that the Swiss relationship with the super-rich is changing, but they do not yet suggest a fundamental rupture, says Fabrizio Gilardi, professor of policy analysis at the University of Zurich. Even after the changes to the special tax regimes and the adoption of the curbs on executive pay, he argues, Switzerland will still be a more welcoming destination for rich foreigners than many other countries.

And the Swiss relationship with wealth has always been marked by a certain ambivalence, Mr Gilardi adds. For all the country's efforts to attract rich foreigners, Swiss culture abhors conspicuous displays of affluence. "What is prized instead is modesty," he says.

Andreas Ladner, professor of politics at the Swiss Graduate School of Public Administration in Lausanne, also plays down the suggestion that recent developments mark a watershed in Switzerland's relationship with the ultra-wealthy.

"One referendum doesn't make a summer," he says, before adding: "The Minder initiative wasn't really about high levels of pay: it didn't cap salaries, for example. Rather it was about giving shareholders a say. And giving the people a chance to express themselves is a fundamental Swiss value."

It is certainly true that the referendum focused as much on the mismatch between pay and performance as on high pay itself.

Mr Minder's decision to launch his initiative in the first place was prompted by the combination of corporate failings and high executive pay surrounding the grounding of Swissair, the Swiss national airline, in 2001. A similar mixture at the Swiss banking giant UBS has also been a potent rallying cry.

Yet despite such caveats, there are signs that the strain on the Swiss-rich relationship is likely to intensify this year.

Switzerland's young socialists are leading the charge for a plan to limit the pay of top executives to 12 times that of the lowest earner in their company. Meanwhile, other voices are pushing for a vote on increasing the rate of inheritance tax. Mr Minder's success is only likely to embolden proponents of these causes.

Such battles, Prof Ladner points out, have yet to be decided one way or another. But the fact that they are looming is a reminder that – even if Switzerland is unlikely to divorce itself from the super-rich – the honeymoon was over a long time ago.