Yesterday, voters in Switzerland overwhelmingly approved new measures to clamp down on executive pay. Under the approved referendum — which means that the new provisions will be added to the Swiss constitution — shareholders will have the ability to veto executive pay packages, so-called “golden parachutes” will be outlawed, and executives who defy the rules could see jail time. As the Wall Street Journal’s Andrew Peaple wrote, “Swiss voters’ anger is understandable. Like other countries, it has seen executive pay rise out of all proportion over the past decade”:

Switzerland has the highest remuneration per board member in Europe, according to Deloitte. Pharmaceutical company Novartis’s recent offer of a six-year $76 million golden parachute to outgoing Chairman Daniel Vasella is the latest example of seemingly egregious rewards. UBS Chairman Axel Weber was paid $5.3 million when he joined the bank this year. Compared with Swiss average wage of $73,500, such payments look out of whack.

The European Union has also approved new restrictions on bonuses at large financial firms.

Many of the same problems that led to Swiss frustration with CEO pay apply here in the U.S. For instance, Citigroup CEO Vikram Pandit walked off with millions of dollars after vaporizing most of his company’s value. Duke Energy paid its former CEO $44 million for working literally one day.

Skyrocketing executive pay (along with growing pay in the finance industry) is a huge component in America’s growing income inequality. In fact, “Executives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005.” Special tax deductions for executive pay cost taxpayers billions of dollars per year.

In the Dodd-Frank Wall Street reform law, shareholders of U.S. corporations were also given new powers meant to rein in executive pay. However, Dodd-Frank only gives shareholders a non-binding vote, meaning that the corporation is able to essentially ignore it.

The corporate argument that huge executive pay packages are necessary to retain top talent has proven to be false. Yet the U.S. tax code preferences these pay packages, and there’s little shareholders (or anyone else) can do to stop them.

One of the prime drivers of income inequality has been the ever-increasing amount paid to both CEOs and workers in the financial industry. In fact, according to the Economic Policy Institute, “Executives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005.”

However, Jamie Dimon, CEO of JP Morgan Chase, America’s largest bank, doesn’t believe Wall Street pay has anything to do with growing inequality. Furthermore, he thinks efforts to realign the bad incentives in Wall Street compensation will turn the United States into communist Cuba:

DIMON: I don’t like the fact that we have an increase in inequality in the United States. But you better be very careful if you say we’re having that because I paid that person properly. All of you have the right to say ‘I want to be paid what I’m worth in the market.’ That’s perfectly fair…We all want an equitable society. We need to have a conversation about what makes it equitable. You can go do it the way that Cuba tried. Okay, well, then it will be equitable but everyone won’t have much. So you’ve got to be very thoughtful how you go about it. So I don’t see people say ‘I want inequity.’ I don’t want to make more money if everyone else makes less. We want to lift society up so everyone’s better off. That does not mean that people don’t have to pay people what they’re competitively worth. If you don’t want a free society then start dictating what compensation can be.

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As a recent study in the Quarterly Journal of Economics showed, banker pay skyrocketed after the deregulation of the 1980s and 1990s, and also became “riskier and more backloaded.” And even some Wall Street heavywights have started to push back against outsized compensation. “I think the kind of money that’s made and the way it was flaunted — look it’s wrong. [...] The money was really unbelievably generous, to say the right word,” said former Morgan Stanley CEO John Mack.

The problem with ever-growing pay is not only that it contributes to income inequality (and often bears no relation to the success of the firm, as evidenced by former Citigroup CEO Vikram Pandit receiving $260 million to run his bank into the ground). Wall Street pay can also put the whole economy in trouble, if the incentives are to take huge risks that end up putting a systemically significant bank at the edge of collapse. Hence, the Dodd-Frank financial reform law gives the Federal Reserve the power to veto pay packages that might cause such a situation.

Citigroup announced on Wednesday that it will cut 11,000 jobs, or 4 percent of its workforce, in an effort to trim expenses.

The moves comes one month after Citigroup paid out nearly $14 million to two former executives, CEO Vikram Pandit and Chief Operating Officer John Havens, who were ousted for poor management. The Citigroup board forced Pandit out, “after a series of missteps this year left some directors feeling that the company wasn’t being managed effectively and that the board wasn’t kept adequately informed.”

Under Pandit and Havens, Citigroup lost 88 percent of its stock value. Still, the executives walked away with generous pay packages:

Vikram Pandit, Citigroup Inc. (C)’s ousted chief executive officer, will get about $6.7 million in 2012 compensation and will forfeit some awards tied to a $40 million retention package granted last year.

John Havens, who resigned last month as Citigroup’s chief operating officer on the same day as Pandit, will get about $6.8 million for 2012 and also forfeit some awards, the New York- based lender said yesterday in a regulatory filing. Citigroup is the third-largest U.S. bank by assets.

“Based on the progress this year through the date of separation, the board determined that an incentive award for their work in 2012 was appropriate and equitable,” Chairman Michael E. O’Neill said in the filing.

It is something of a trend for corporations to pay top executives high salaries, while employees feel the consequences of a struggling company. After failed Twinkie-maker Hostess declared bankruptcy, it cut workers’ pay 8 percent, but left the CEO’s $1.5 million salary untouched.

After failed Twinkies-maker Hostess filed for bankruptcy in November, acting chief executive Gregory Rayburn imposed an 8 percent across-the-board pay cut on the company’s workers. Despite those cuts, Rayburn, who took the company over after its second bankruptcy filing in March, will not be subject to the pay cut because he is not technically a company employee, the Huffington Post’s Bonnie Kavoussi reports:

Though he imposed an 8 percent pay cut for all Hostess workers, Gregory Rayburn’s monthly $125,000 pay — or $1.5 million a year — will remain unchanged, a company spokesman told The Huffington Post on Monday. Rayburn is not on the Hostess payroll and therefore isn’t subject to the imposed pay cut, the spokesman explained.

Earlier this year, Hostess’ former CEO received a pay increase from $750,000 to nearly $2.5 million even as the company was struggling. The pay package was later reduced to $1.5 million, and Rayburn reduced the salaries of four other senior executives who received bonuses to just $1 until the company emerges from bankruptcy, according to a company spokesperson. Four other executives who received raises, the spokesperson said, had their salaries reduced to pre-raise levels.

Still, the company asked a judge to approve $1.75 million in bonuses for 19 executives after it filed for bankruptcy in November. The judge approved the bonuses this week, making Hostess the latest company to dole out big pay packages to executives even as their firms were failing.

Wall Street compensates its CEOs so well, one former executive walked off with $260 million despite crashing his company. Even Wall Street heavyweights have criticized the practice, which has helped widen the nation’s income inequality. According to a new study in Quarterly Journal of Economics, Wall Street’s generous pay began to skyrocket following deregulation.

The Glass Steagall Act, which separated commercial and investment banks, was gradually weakened in the late 1980s, until its full repeal in 1999. This changed organization and competition within finance, leading to the creation of mega-banks.

Deregulation coincided with Wall Street’s ever-increasing pay. By 2005, Wall Street earned 250 percent more than other industry executives (that ratio reaches 300 percent in the Tri-State area). “In other words, pay in the finance industry has become significantly higher, but also riskier and more backloaded.” But that could change when Dodd-Frank reforms go into effect:

Changes in financial regulation are an important determinant of all these patterns. The ultimate test of this hypothesis may be the evolution of wages in the next 5–10 years. If new regulations (Basel 3, the Dodd–Frank Act, etc.) are effectively implemented and if we are correct, then we expect both wages and skill intensity to converge and excess wages to disappear.

The study also shows the growing gap in pay for top finance executives and top regulators. Between 1980 and 2005, the ratio grew from 10 times to more than 60. The researchers write, “Given the wage premium that we document, it was impossible for regulators to attract and retain highly skilled financial workers because they could not compete with private sector wages.” (HT: Business Insider)

Hostess Brands, the maker of sweet snacks like Twinkies that filed for Chapter 11 bankruptcy protection last week, will ask a bankruptcy judge today to approve a plan that will allow it to pay $1.75 million in bonuses to 19 of its executives. Hostess’ decision to file for bankruptcy came amid disputes with its union workers, who threatened a strike that Hostess said imperiled the company’s finances. The unions are now protesting Hostess’ request for the bonuses, though they are unlikely to prevail, CNN Money reports:

Hostess Brands will ask a bankruptcy judge on Monday for approval to shut down the company and pay $1.75 million in executive bonuses.

Unions representing workers at the maker of Twinkies, Wonder Bread and Drake’s snacks are arguing against the bonuses. [...]

Under the plan, bonuses ranging from $7,400 to $130,500 will be paid to 19 executives. The company argues the bonuses are below market rates for such payments.

Even as it blamed unions for the bankruptcy and the 18,500 job losses that will ensue, Hostess already gave its executives pay raises earlier this year. The salary of the company’s chief executive tripled from $750,000 to roughly $2.5 million, and at least nine other executives received pay raises ranging from $90,000 to $400,000. Those raises came just months after Hostess originally filed for bankruptcy earlier this year.

Hostess is hardly the only company that has compensated its executives during bankruptcy or times of financial instability. Failed financial firm MF Global gave CEO Jon Corzine an $8 million pay package after it filed for bankruptcy, and Citigroup CEO Vikram Pandit received a $6.7 million pay package when he resigned, despite Citi’s 88 percent profit loss during his final quarter. And Hostess isn’t alone in giving executives massive raises while asking for concessions from union workers either: construction giant Caterpillar rewarded its CEO with a 60 percent pay raise, paying him $17 million, even as it forced a pay and pension freeze on its union workforce.

Today, Hostess Brands inc. — the company famed for its sickly sweet dessert snacks like Twinkies and Sno Balls — announced they’d be shuttering after more than eighty years of production.

But while headlines have been quick to blame unions for the downfall of the company there’s actually more to the story: before the company filed for bankruptcy, for the second time, earlier this year, it actually tripled its CEO’s pay, and increased other executives’ compensation by as much as 80 percent.

At the time, creditors warned that the decision signaled an attempt to “sidestep” bankruptcy rules, potentially as a means for trying to keep the executive at a failing company. The Confectionery, Tobacco Workers & Grain Millers International Union pointed this out in their written reaction to the news that the business is closing:

BCTGM members are well aware that as the company was preparing to file for bankruptcy earlier this year, the then CEO of Hostess was awarded a 300 percent raise (from approximately $750,000 to $2,550,000) and at least nine other top executives of the company received massive pay raises. One such executive received a pay increase from $500,000 to $900,000 and another received one taking his salary from $375,000 to $656,256.

Certainly, the company agreed to an out-sized pension debt, but the decision to pay executives more while scorning employee contracts during a bankruptcy reflects a lack of good managerial judgement.

It also follows a trend of rising CEO pay in times of economic difficulty. At the manufacturing company Caterpillar, for example, they froze workers’ pay while boosting their CEO’s pay to $17 million. And at Citigroup, CEO Vikram Pandit received $6.7 million for crashing his company, walking off with $260 million after the business lost 88 percent of its value.

Citigroup CEO Vikram Pandit was pushed out the door of his company in October after overseeing a precipitous decline in his bank’s value. Overall, Citigroup lost nearly 90 percent of its stock price during Pandit’s tenure. But that won’t stop Pandit from walking off with $6.7 million for his last year on the job:

Citigroup said Friday that the former CEO, who resigned last month in a management shakeup, will receive an “incentive award” of $6.7 million for his work at the bank this year. Former president and chief operating officer John Havens, who stepped down along with Pandit, is getting $6.8 million, according to a filing with the Securities and Exchange Commission.

The two men will also continue collecting deferred cash and stock compensation from last year, awards valued at $8.8 million for Pandit and $8.7 million for Havens.

The company suffered a profit loss of 88 percent during the third quarter, when Pandit supposedly earned his “incentive award.” During his time at Citi, Pandit made some $260 million in total compensation, even accounting for the year he took a $1 salary during the financial crisis.

Several Wall Street heavyweights have recently said that banks need to rethink the sky-high compensation they’ve been paying (which has helped exacerbate the nation’s income inequality). For instance, Morgan Stanley CEO called the financial industry “overpaid.” “There’s way too much capacity and compensation is way too high,” he said.

Wall Street pay this year is expected to increase by up to 10 percent over 2011, according to the latest surveys. And Wall Street financiers think that number Mitt Romney would be even better for their compensation, as Bloomberg News reported:

A win by Mitt Romney in tomorrow’s U.S. presidential election is more likely to boost Wall Street compensation than if voters re-elect President Barack Obama, according to a survey conducted by eFinancialCareers.

The poll of 911 financial-market professionals found 57 percent expect the election to change compensation, while 32 percent said it won’t and 11 percent said they didn’t know, eFinancialCareers said in a statement.

Of those who expect the election to influence pay, 72 percent view a victory by Romney, a Republican, as having a “positive” effect on compensation, the survey found. Re- electing Obama, a Democrat, was viewed as positive for compensation by 18 percent and negative by 71 percent, the survey found.

Romney has vowed to repeal the Dodd-Frank financial reform law, which includes measures aimed at reining in the bad pay incentives on Wall Street. It allows the Federal Reserve to veto pay packages that encourage risk that could lead to a new round of bank bailouts. It also allows for shareholder votes on pay packages; the first negative vote was handed to former Citigroup CEO Vikram Pandit.

High pay on Wall Street has exacerbated income inequality over the last several decades, and while bankers brought in higher and higher paychecks, they took on more and more risk, eventually culminating in a financial crisis. Now, even some Wall Street executives are pushing back against outsized pay packages. Morgan Stanley CEO acknowledged last month that Wall Street pay is “way too high.”

During an interview on Bloomberg TV yesterday, former Morgan Stanley CEO John Mack — who led the bank through the 2008 financial crisis, when it was bailed out by the federal government — said that Wall Street pay has been too high and needs to come down:

Let’s be totally honest. A lot of people who have done really well have not handled that wealth very well. That gets to part of the issue with Wall Street. I think it’s really changing. I think the kind of money that’s made and the way it was flaunted — look it’s wrong. [...] The money was really unbelievably generous, to say the right word…At the end of the day the one area that has to be squeezed [to give a return to shareholders] is the compensation number.

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Estimates show that Wall Street pay is going to be near record highs for 2012, and the biggest banks are back to making pre-recession profits, while most of the rest of the country is still struggling with the effects of the Great Recession. Over the last three decades, increasing pay on Wall Street has contributed to America’s skyrocketing income inequality.

Earlier this month, Morgan Stanley’s current CEO agreed that banker pay is “way too high.” Another former trader said, “There’s no other industry where you could get paid so much for doing so little.” (HT: Mark Gongloff)