The elites must lead the way on pay cuts

By Leith van Onselen

With low-paid retail and hospitality workers being required to take pay cuts via reductions in penalty rates, The Australian’s Adam Creighton has penned a timely reminder of the hyper-inflation of CEO and senior management pay, which has gone largely noticed:

The market for executives and the level of pay is highly dysfunctional, propped up by the largesse that is possible only when spending other people’s money, in this case that of remote shareholders…

Six weeks ago I offered to run Australia Post for $560,000 a year, a mere 10 per cent of what the former chief executive, Ahmed Fahour, was paid last year. I’ve not heard from the board, who are no doubt engaged in an intense global search for someone willing to accept a few million dollars a year to run the state-owned postage giant…

Commonwealth Bank chief executive Ian Narev, made $12.3m last year, partly for achieving ­“customer satisfaction targets”, a nebulous concept that would ­certainly flout this principle…

Does anyone seriously claim that western economies are more innovative and dynamic now than they were before the 1990s, when “performance pay” spread? It’s an argument that is comprehensively demolished by Nobel prize-winner Edmund Phelps — a strong proponent of genuine capitalism — in his insightful 2013 book Mass Flourishing, which chronicles how a sclerotic corporatism has sapped the dynamism that used to underpin our economies…

No one is suggesting top managers shouldn’t get paid well, nor that government should micromanage corporate pay. There are no perfect solutions but the current framework is not working… Lecturing voters on the need to lift ­productivity growth while permitting elite managers to extract huge rents that ultimately push up ­prices will only fuel further populist movements…

Well said. I have always found it irritating when interest groups like the Business Council of Australia complain about Australia’s uncompetitive wages and the need to cut penalty rates or the minimum wage, but conveniently refuses to address the egregious blow-out in CEO and senior management pay.

The fact of the matter is that the growth in average employee earnings is the lowest on record:

And has failed to keep pace with growing labour productivity:

Meanwhile, the share of total factor income going to workers (as opposed to business owners) has been falling for decades:

CEOs, senior management, and politicians are receiving obscene salaries and benefits while ordinary Australian’s incomes stagnate while they drown in debt:

And still, the business lobby continues to demand widespread cuts to company taxes so that they can further feather their own nests.

Arguments around the need to boost Australia’s international competitiveness via wage restraint and tax reform would carry far more weight if the elites led from the front and agreed to share the burden of adjustment.

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Comments

  1. GunnamattaMEMBER

    And on that elite pay

    …….dont mention medical professionals – Australia being home to the worlds most expensive, with the worlds most protected medical professional labour market to boot…..

    • ResearchtimeMEMBER

      So true… UK medical professionals get around 50-70%, and surgeons often 40-50% of some of the big guys here. Could give examples and numbers, but thought better of it.

    • Gunna – at least medical professionals do some good. The Lawyer fraternity, on the other hand, is even more outrageously paid. Whether it only does harm to our society or just, on average, no good might be able to be debated. Personally I’m yet to meet one that contributes, net, in any way positively to the well being of society.

      P.S. While I think the MB fraternity takes a simplistic and wrong stand on the current penalty rates debate UE is spot on the money here with respect to the role of executive salaries.

      • GunnamattaMEMBER

        As someone who got out of law a generation ago I am inclined to agree with you.  But I would note that any kid from anywhere can basically get into a law course somewhere these days – and in most instances their marks don’t even have to be that flash.

        Sure, to get some sort in of with a big and impressive firm where they can bill every moment to top dollar they will need to show some nous and some university scores – and those who do will command dollars.  But the vast majority of law graduates these days don’t actually do much law and a lot tend to end up in the burbs fluffing real estate sales.  

        But at the moment to get into medical professions you need to be able to chalk up a 99% secondary education score (which essentially means living in an educational humidicrib for a few years of secondary education – mainly achieved through being spoon fed), and this reflects the fact that intern positions in hospital and medical practices are limited by the accreditation of the medical associations – and these take the view it is better to keep return on investment levels up, while using immigration places as a release valve [while making the accreditation process for foreign trained doctors both expensive and demanding enough to keep them satisfied as GPs – where provided they can churn through clients at the appropriate rate, they will make a comfortable living].

        Beyond that however is the not insignificant fact that unlike the legal profession very large slabs of medical income is ultimately derived from the budget through Medicare, and the ordinary mug punter doesn’t question the doctors (or specialists) charge beyond noting it is expensive and being grateful to a lesser or greater degree for the delights of Medicare or private health insurance.  To add insult to injury (of the wallet kind) I am currently looking at a doco suggesting that the most lucrative (highest margin) medical imaging, pathology, physiotherapy, psychological and dental establishments (and GP’s) tend to be alongside (and drawing the bulk of their clients from) large military establishments – Townsville, Kapooka, Singleton, Puckapunyal, HMAS Cerberus, Darwin, Wagga, Russell and the like – with the budget providing the bulk of that margin too.  

        It isn’t just executive salaries – though they are conspicuously free from any ostensible value for money for anyone, and a sop to psychopaths – but higher levels of management in large organisations (public and private sector) and any form of specialist drawing income from the public [hence my reference to the medical profession].  Australia needs to be asking itself questions about what it pays elites across the board (and how it pays them – from the public or private side), but it certainly needs to be including medical professionals in that discussion

      • mild colonialMEMBER

        Think you can add Canberra to that defence list, too. What you’re saying is that there are poor market signals in medicine in Australia. There are certainly poor signals to maintain your own health.

  2. Jumping jack flash

    Yes it needs to happen. But good luck with that!

    It would solve so many problems. Not the least of which is improving our global competitiveness. Wages set prices. Wage inflation eventually ends up as price inflation.
    The fact that wages have been stagnant for the past 10 years is only beginning to show as stagnant prices in the cooked and crooked CPI. And if it shows up in there, you know it’s bad, bordering on hopeless.

    Wages can’t come down by any meaningful amount with all the debt everyone has. Maybe the elites aren’t terribly indebted? In fact they probably aren’t. It is the stupid rubes who took on the mountains of debt to hand over to them to make them all instantaneously rich beyond measure.

    Don’t forget that the more debt you have the more inflexible your wages are to coming down.

    So unsurprisingly we see the wage cuts aimed squarely at those who are expected to have the least amount of debt – young people and generally people who were on crap wages to begin with.

    The whole place runs on debt, created/borrowed by the banks, and secured against property. Vehemently protected by the ruling class beholden to their banking masters. Once you start thinking like that, a lot of stuff begins to make sense.

  3. Switzerland recently had a referendum on executive pay and of course the Swiss people voted to ban golden parachutes.

    Will the ALP do the same?

    What is Pauline’s position on golden parachutes?

    • ErmingtonPlumbingMEMBER

      I bring this kind of thing up at branch meetings and most members agree that its the Labor parties traditional roll to make a noise about this kind of stuff.
      The problem is the decision makers further up are not so noisy on this issue,…probably for Careerist and practical reasons (not making powerfull enemies etc)
      Only a large, broad based and active rank and file can keep these competitive apparichiks in check.

      You ask “Will the ALP do the same?”

      Jacob,…Why don’t you join the party and help MAKE them do the same.

  4. Can someone tell us how much truck drivers get paid in Norway? Aussie truck drivers should not be paid any less than that.

    And foreigners should be banned from driving trucks on public roads in AUS.

  5. Meh wages have been stagnate for decades, its only the ratio between floor and C-suit that has exhibited hyperinflation all whilst productivity went parabolic.