The Productivity Commission's Report on Executive Salaries has shied away from dealing with the elephant in the room, the huge gap between executive packages of large corporations and average wage in Australia.
It is a costly exercise in shameful whitewashing of out of control remuneration practices. The principal recommendations are just piecemeal tinkering. Amazingly, Corporate Law Minister Chris Bowen responded "it was never the intention of the government to control the excess of executive remuneration".
If not, why not we must ask!
Australians should realise that, if this attitude prevails, meaningful reform won't happen. Our egalitarian society is undermined by the greedy big end of town engaged in institutionalised and legalised robbery. Who can justify packages of up to 150 times average pay in a society where egalitarianism is a key value of the culture? In such a society there must be an equitable, demonstrable link between average pay and the highest pay. We cannot leave this to the "market place". That is just as important as saying that we have standards for minimum pay - as we have. This is not America and most Australians would not want it to be like America whatever the merit of it over there. (For 1929 and 2009 responses in the US please check here and here.)
Regrettably, one has to conclude that in spite of researching the extent of executive packages in Australia and actually making a good case for major corrections, lobbying by powerful business lobbies apparently has swung them away from doing exactly that. The conservatism and pro-corporate views of this Commission is well reflected in the biased comments by one Commissioner, Allan Fels who commented (Sydney Morning Herald, January 5, 2010):
It rightly proposes to leave the responsibility for setting executive pay with boards, albeit subjecting them to greater shareholder pressure and some improvements in process.
"Rightly? That reasoning may be applicable within the limits of a maximum ratio but why should there not be limits? We can all see what has happened in the last 20 years. The Commission's argument that legislating for caps is costly and not practical is nonsense. I have advocated in writing and verbally to the Inquiry's Hearing in Sydney, that a ratio be introduced of 10:1 so that a maximum CEO salary, in total, in is the order of maximally $600,000.
That would be a massive saving for the corporations involved; money that could be much better spent on environmental investments. The idea that this would limit our so-called competitiveness in terms of attracting foreign CEOs, as claimed by the Commission, is laughable. The outrageous packages that have been paid to foreign executives, who very often put in below par performances, make a mockery of that argument.
The view of the Commission and the ALP Government that there are no serious problems with Corporate Governance is deeply flawed. Just what the basis is for their assessment is not clear at all.
There have been three major inquiries about corporate governance in Australia most recently the David Karpin Inquiry in 1995. All three inquiries were highly critical of Australian senior management.
The fact that the Australian economy came through a difficult period reasonably well was due to the massive revenues generated by the resources boom and, let me emphasise this particularly, competent government regulation of the banking system. It had little to do with competent management. There is in fact much room for improvement in the quality of management, not by recruiting foreigners from the grossly overpaid corporate elites in the US or refugees from post-Apartheid South Africa, but by introducing superior management systems such as, for instance, employee share ownership schemes and employee participation in decision-making, both still pretty unusual in Australia. (See here and here.)
Could Australians take heed of the need for regulation and management improvement if this Commission fails to do that? Perhaps the time has come for another type of Commission or the replacement of the Commissioners!
What can we expect from our politicians who say that it not their role to control this? Why it that so? Could it be that their party is still massively dependent on corporate donations for elections? Also the more senior politicians among them will be eyeing lucrative Directorships on Corporate Boards after their service in the Parliament? There are many examples of this at both federal and state levels. What politician would want to upset their future employers? These may well be the two principal reasons why many MPs are so keen to leave this issue to the market place, Corporate Boards and powerless shareholders with the outrageous results that have actually prompted this long overdue Inquiry.
Unless they act now this sickening blot on the body politic and this society will grow to cancerous proportions. Five years from now the situation will be worse because they did not act.
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