Excessive management pay-outs have sparked public outrage on both sides of the Atlantic in recent months, with the bonus schemes cast in stark contrast to widespread job cuts and plunging equity markets due to the financial crisis.
In Sweden, the criticism has come to focus on payments made to executives at both state-run and private pension funds. Both world number two truck maker Volvo and bank SEB have withdrawn proposed management pay schemes.
“There must be no question that the management of state-owned companies work with the good of the Swedish people in the front of their minds,” Finance Minister Anders Borg and other representatives of the four-party coalition government said in an article in the Dagens Nyheter (DN) newspaper.
“We are closing the door to all possibilities for variable remuneration and bonus. All the top managers at state-owned companies will only have fixed wages under the new guidelines.”
According to the government’s own review, high-ranking executives at 12 of Sweden’s 53 state-owned companies have variable compensation as part of their pay packages.
“Nothing excessive has been found, but it doesn’t matter because everyone believes that it is. So we’re taking a step back and getting rid of it. It’s just as well to get a clean slate so that citizens can feel that things are proper and clean in a state-owned company,” said Enterprise Minister Maud Olofsson at a press conference on Tuesday.
All except for one of the 12 state-owned companies with variable compensation cap it at four-times an executive’s fixed monthly salary, but in practice most have a ceiling of two-times fixed monthly salaries.
The only exception is Swedish Export Credit Corporation (Svensk Exportkredit – SEK), where an old agreement from the previous Social Democratic government is still in place.
The agreement hasn’t been renegotiated by SEK’s board despite new guidelines on compensation at state-owned companies issued in July 2008 by the current centre-right government.
“Accountability will be demanded where it hasn’t happend,” write Olofsson and Borg, along with Financial Markets Minister Mats Odell, and chair of the Riksdag’s industry committee Karin Pilsäter, in DN.
They write that the culture of bonuses has contributed to imbalances which have led to a crisis in the global economy and forced governments to use taxpayer money to give temporary support to the financial sector in order to prevent a collapse of the payments system.
Sweden is currently working with other countries to come up with new rules for a compensation system for high-ranking executives in the financial industry.
The discussion of how to reform bonus systems will also spread to other areas of private industry, as the leaders of large companies will also be invited to present their views on appropriate levels of compensation for executives and company directors.
The government said it would also invite other major corporate stakeholders to discuss “reasonable remuneration levels” at Swedish companies.
The Swedish government owns stakes in companies such as the Nordic region’s biggest bank Nordea, telecommunications operator TeliaSonera and airline SAS.
A spokesperson for Olofsson said that the government would also try to influence remuneration policy at companies in which it owns stakes.
“Representatives of the state on the boards of these companies will push the government’s line,” spokesman Frank Nilsson said.