The great big pay disparity

The Productivity Commission’s dismissal of this approach is based on the experience of the US. However, with the benefit of this experience a variable rate of reasonable pay, taking into account the size and responsibility of an executive’s role, along with reforms to capital gains taxation would eliminate the shortfalls manifest in the US experience.

Australia’s capital gains system provides a tax advantage and incentive for executives to opt for payment in the form of shares. While there is a risk in accepting a variable entity as payment the 50 per cent tax discount offsets this risk and increases its attractiveness.

Removing the concession on capital gains tax would address many of the issues surrounding excessive executive pay.

The concessional tax rate on capital gains is a far greater incentive to share-based payments than a variable rate of reasonable pay would be. Yet, the Productivity Commission left this concern unaddressed.

Another simple but effective option is to increase the top marginal income tax rate.

During the GFC the Prime Minister succinctly articulated what was at the heart of public disquiet over executive pay:

The key thing with executive pay is this - first of all, people around the world are fed up and angry with these outrageous packages paid to financial company executives who have contributed so much to what has gone wrong in the global economy. And who pays the price? Working people and their jobs.

Having now been given the lacklustre Productivity Commission report it is up to the government to stand by its earlier convictions and address this outrage. Otherwise it will be another case of all talk, no action.