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.


[email protected]

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.