The referendum saw 65.3% vote against the plan with 34.7% in favour.
The country is home to a range of giant businesses, including pharmaceutical companies Novartis and Roche, the insurance groups Zurich and Swiss Re and the banks UBS and Credit Suisse.
The rules would have given Switzerland the world's toughest pay rules and some of the lowest executive salaries.
Business leaders said that would limit foreign investment and the government was also opposed to the proposal.
The Young Socialists, who proposed the measure, admitted defeat.
By Imogen FoulkesSwitzerland correspondent, BBC News
The one to 12 initiative was clearly just too radical for many Swiss voters. The big business cantons of Zurich and St Gallen have rejected it outright.
Despite widespread public anger that some Swiss executives are earning hundreds of times the wages of their employees, the government's arguments that such severe salary restrictions would undermine the Swiss economy and deter foreign investment clearly carried weight with voters.
It is the second time this year that Swiss voters have been balloted on the issue.
In March they did back strict limits on bonuses and golden handshakes.
There has been widespread public anger at revelations that some of Switzerland's chief executives are earning more than 200 times what their employees take home.
Some Swiss have been further irritated that these high levels of pay are being given to executives whose firms have been cutting jobs.
Although this proposal has been defeated, the issue of high salaries and a widening wage gap has not gone away.
Early next year, Switzerland will hold another referendum on a guaranteed minimum wage.
Switzerland's system of democracy means citizens can call nationwide votes on issues that concern them.
Swiss voters have rejected a proposal that would have limited executive pay to 12 times that of the lowest paid.