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The pension fund - a battle on all fronts - interview with Benedikt Weibel
echo-interview, September 2012

The pension fund - a battle on all fronts

ELIPSLIFE ECHO - INTERVIEWS WITH PROMINENT BUSINESS LEADERS

The pension fund – a battle on all fronts

echo-interview with Benedikt Weibel, Ex-Swiss Federal Railways (SBB) boss

elipsLife echo: Mr Weibel, you reached retirement age a good year ago, but you are still active as author, speaker, professor and director. We are assuming that it cannot be the meagre benefits paid by the SBB pension fund that are driving you to be so active, or are we wrong?

Benedikt Weibel: My current activities do not have anything to do with the benefits paid by the SBB pension fund, although they are certainly related to the pension fund per se. Except for the pension from the Old Age and Survivors’ Insurance (AHV), which I have been receiving for about a year, I do not receive any pension. When I stopped working for the SBB at the age of 60, I requested the lump-sum payment of my entire pension fund capital after obtaining a lot of good advice. I invested this money with an insurance company, and I am still paying contributions. When I am 70, I will withdraw my capital. Even though the economic situation has changed in the past six years, I have not had reason to regret my decision.

You were with the SBB for a total of 28 years, from 1993 to 2006 as the Chief Executive Officer. As the boss, how did you see the SBB pension fund, and what role did the pension fund play in strategic company decisions?

The pension fund was one of my biggest problems, and from 1993 to 2006 we were embroiled in a permanent battle on all fronts. In 1993 we were stuck in a classic turn-around situation. In the previous five years, personnel expenses rose from CHF 2.5 billion to more than CHF 3 billion and we had to drastically reduce our personnel expenses. Personnel expenses can be influenced via three factors: the number of employees, salaries and the pension fund. During my time as CEO of the SBB, we reduced the number of employees by 12,000 people. In 1996, salaries were reduced and frozen for two years. We could not, however, take our own decisions regarding the pension fund. Although we had our own pension fund, the articles of association were approved by Parliament, and we also had to duplicate the decisions of the Swiss Federal Pension Fund.

Benedikt Weibel in an interview

…and what measures did you implement for the pension fund?

At that time only two-thirds of our liabilities were covered in accordance with the principle of perenniality, while the uncovered third earned interest at 4%. This interest burden increased exponentially with the increase in the number of employees. Against the wishes of the competent Federal Councillor and the Federal Finance Administration, I made it my mission to fully finance the SBB pension fund. For the only time in my life I actually sent a letter to all the State Councillors. Parliament finally decided to fully finance the pension fund, naturally without any fluctuation reserves. We knew that we needed a target return of 5.2% if we wanted to reach a funding ratio of 100%, but in those days of the stock exchange boom and dot com bubble, such a return seemed quite realistic.

But the financing did not work out in the end.

As is clear in retrospect, because we could never have earned a return of 5.2%. Because of the many early retirements, which were fully financed and therefore much more attractive than a voluntary retirement, the ratio between active insured and pensioners became a serious problem. The pensioners, however, could not be involved in measures to restructure the pension fund. Together with the Federal Finance Administration we tabled a good proposal for a solution. The Confederation would have taken over the old portfolio of insured in order to slim it down. It would have been possible to define this risk precisely. But Federal Councillor Merz did not want to do this, and that was the end of our plan. Personally, I was deeply disappointed at the time. In the end we used real estate income of CHF 1.5 billion to increase the pension fund’s funding ratio to 93%.

For some time now, public-sector entities have been adopting management principles applied in the private sector. This is also true for the SBB with its public service mandate. But with how much private enterprise can the SBB cope?

Personally I do not think that the difference between the public and private sectors is important. No private company is totally unaffected by the regulatory environment. Let us take the pharmaceutical industry, for example, which for better or for worse is dependent on the decisions of the US Food and Drug Administration. Management is management, whether private or public is not of central importance. Of course, the objectives and context are different, but the same business principles apply for both sectors.

Benedikt Weibel Interview Pension Fund

The Swiss are champions in rail travel, and everybody has their own ideas about what the SBB should look like. How did you manage to reconcile the public service mandate and diverging customer expectations?

In 1993, the SBB customers could typically be divided into four groups – the poor, the old, the students and the freaks. If you take the train today, you will see a representative cross-section of the Swiss population. This is not the case in any other country. Whereas people previously took the train for ideological reasons, they take the train today because it is the fastest way of travelling. People in Switzerland have long had strong emotional ties with the SBB. The public is behind the railway. This is confirmed by the success of the half-price rail card: we suddenly had more than 2 million people with a half-price rail card. Or the annual SBB network rail card. When I was Head of Passenger Transport in 1986, we had 25,000 holders of an annual network rail card, but today this number is 400,000. This is an incredible development and shows that the SBB meets the expectations of its customers.

Given these figures and the fact that the trains are always full, could we not say that the SBB is a victim of its own success? How much growth can the SBB digest?

The growth rates really are not that high. From 1993 to today we posted 50% growth, which comes to around 2% per year. In the first half of 2012 we even suffered a slight contraction. My opinion is this: whoever thinks that we have overflowing trains or stations in Switzerland should visit the Shinjuku station in Tokyo. I am happy that the trains are full and that there are many people at the stations. There is also no booming region in the world where there are no logjams or long queues.

Interview Pension Fund with Benedikt Weibel

In many SMEs the boss personally knows all the employees, and has a certain degree of contact with them. What did you as the boss of a 30,000-employee business do to keep in close contact with your people?

That is one of the most central questions. From an early stage it was my maxim to accept every invitation from the staff, and I attended every trade union meeting. For example, when we decided to freeze the salaries I knew that I had to explain this decision to the people on the spot. We first invited the staff to a meeting at 15, and later 17, different venues. I always travelled alone, and spoke to the people without any support. During the first 15 minutes I explained the decision, and then a very intensive discussion started. These meetings were soon called area meetings, because I was travelling all over the country. Afterwards I did this every year in the second half of the year. And when we had to decide something I immediately informed the Executive Board of my on-site experiences. These meetings enabled a very intensive dialogue with the employees at all hierarchical levels and in all functions.

Have we understood this correctly – the results of these area meetings were usually discussed directly at the next ExB meeting?

Yes, because in every big company it works the same: bad news is filtered for the top. As a result, the boss has to keep in touch with the grass roots. I remember a discussion in Winterthur where an employee asked me whether I knew that the trains on the line between Bülach and Schaffhausen were driving without safety systems. I was hardly back in the office before I gave instructions to check the facts. And it was true, the stations had been adapted but the rolling stock was not compatible. Naturally we immediately rectified the situation. It is important that the employees see that their intervention leads to change. The faster, the better.

Is there a recipe for making sure in a big company that customer needs are recognised at all company levels and by all hierarchies?

Contact with the employees also served its purpose in this regard. Because in the end it is the employees who are in contact with the customers. I was also very well known and travelled by train very often, and people often spoke to me. This helped me develop a very good sense of the needs of the customers.

Customer needs change constantly. In the private sector, competitive pressure ensures innovation. The SBB, however, does not have this competition. How do public-sector companies stay competitive without competition?

The SBB most certainly has competition. In the private sector it competes with individual motor vehicle traffic, and in the area of goods traffic, the market has been open since 1999. In any case I do not agree that competition leads to better customer relationships. When I see how I am often treated as a customer, I have to say that many private-sector companies make life difficult for me.

Back to the pension fund issue. What developments in the employee benefits insurance do you expect in the next three to five years?

I am very sceptical. I doubt that the current model will be sustainable in future, because one of the financial pillars, i.e. capital yield, has collapsed. At some point the capital is converted into a pension, and from this moment on the performance principle applies. There are two factors that are very problematic for the system: longevity on the one hand and the low income on capital on the other. If I have to make a forecast, I would say that the only possible model in 20 or 30 years will be the model that I chose for myself: payment of the accumulated capital. The joint accrual of capital by the employee and employer is a good idea, but the conversion of the capital into a pension is becoming ever more problematic.

Benedikt Weibel Interview
ELIPSLIFE ECHO - INTERVIEWS WITH PROMINENT BUSINESS LEADERS

The pension fund – a battle on all fronts

Personal Profile
Benedikt Weibel
Ex-Swiss Federal Railways (SBB) boss

Benedikt Weibel was born in 1946. Dr. rer. pol., studied and worked as a research assistant at the University of Berne. Qualified mountain guide. He joined the SBB in 1978 and served as CEO from 1993 to 2006. 2003 – 2006 Chairman of the International Union of Railways. 2003 – 2007 Member of the board of directors of the French national railway company. 2007/08 Delegate of the Federal Council for EURO 2008. Currently Benedikt Weibel is honorary professor at the University of Berne, journalist, chairman and member of a number of boards of directors.