WHAT EXPLAINS TOP MANAGEMENT
COMPENSATION IN SWITZERLAND?
Master of Science
in International Management
Raúl Barroso Casado
January 17th 2005
Professor: Daniel Oyon
Expert Professor: Franck Missonier-Piera
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INDEX
1 WHAT EXPLAINS TOP MANAGEMENT COMPENSATION IN SWITZERLAND? ........ 3
2 LITERATURE REVIEW ............................................................................................ 6
2.1 Agency costs.............................................................................................................................. 7
2.2 Control on Agency Problems .................................................................................................. 7
2.2.1 Compensation and Performance ............................................................................................ 8
2.2.2 Compensation and Size ....................................................................................................... 13
2.2.3 Compensation and Risk ....................................................................................................... 15
2.2.4 Compensation and Corporate Governance .......................................................................... 16
3 COMPENSATION IN SWITZERLAND..................................................................... 21
3.1 Hypotheses:............................................................................................................................. 21
3.1.1 Pay is positively related to Performance ............................................................................. 21
3.1.2 Pay is positively related to size............................................................................................ 22
3.1.3 Pay is positively related to risk ............................................................................................ 23
3.1.4 Weak governance leads to higher salaries ........................................................................... 23
3.2 Sample Data............................................................................................................................ 25
3.3 Results ..................................................................................................................................... 28
3.3.1 Short Term Performance ..................................................................................................... 28
3.3.2 Longer Term Perspective..................................................................................................... 31
3.3.3 Effects of Size...................................................................................................................... 33
4 CONCLUSIONS .................................................................................................. 36
4.1.1 Acknowledgements ............................................................................................................. 39
5 APPENDIXES .................................................................................................. 40
6 REFERENCES .................................................................................................. 50
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1 What Explains Top Management Compensation in
Switzerland?
The purpose of this paper is to understand the compensation schemes of the Chief Executive Officers in Switzerland. Two aspects make this study particularly attractive. In the first place, the recent changes in Swiss legislation regarding Corporate Governance make this research very exciting and current. The second aspect is the little research on this field done
in this unique country with influences from Germanic, French and Italian cultures and strong economic ties with Anglo Saxon countries.
Based on the analytical study "Corporate Governance in der Schweiz" (Corporate Governance in Switzerland) by Prof. Dr Karl Hofstetter, Economisuisse, the umbrella association for Swiss Corporations, launched the "Code of Best Practices for Corporate Governance". This Code was used by the Swiss Exchange (SWX) as a...