Posted on 16-6-2003
Party
Down
Transcript of a programme broadcast by ABC radio in Australia
Wednesday 28/05/2003 with guest Peter Lewis - Editor of Workers
Online*
Research into executive pay commissioned by the NSW Labour Council
makes explicit what most of us have suspected for some time:
the multi-million dollar CEO packages are a rolled gold rort.
The Council asked a team of respected academics headed by Dr
John Shields from the Sydney University's School of Business
to analyse the return these astronomical wages deliver to shareholders,
workers and the broader community. hese are not a bunch of sociologists
applying some whacko leftist theory; it is a sober analysis
of share return, dividends and long-term viability. You rarely
see an animated academic, but when the researchers came into
Labour Council to brief us on the results a few months ago it
was as if they had discovered the equivalent of El Dorado.
Here's what they found.
- Executive Remuneration levels in Australia
grew over the decade 1992-2002 from 22 times average weekly
earnings to 74 times the average wage.
- At the same time, executive option packages,
with 'long-term incentives' - such as share bonuses, share purchase
plans and share option entitlements increased from 6.3 per cent
of total remuneration in 1987 to 35.2 per cent of total pay
ten years later.
This all confirmed what everybody expected. But then the academics
found something that surprised them. They cross-referenced the
pay levels of Australia's top 150 CEOs, as outlined in the Australian
Financial Review's annual executive remuneration survey and
compared it with the performance of their company. Crunching
the numbers, they found the often-stated link between high executive
pay and company performance does just not exist. Indeed, their
evidence was that as an executive's pay increases, the performance
of the company actually deteriorates.
Against three criteria: return on equity, share price change
and change in earnings per share, their analysis shows that
the best performing companies paid the lowest wages and the
worst performing firms were paying the most. To those who have
argued that you need to pay astronomical salaries and throw
in Lotto-style options to get executive 'talent', we can now
confidently say that their emperor has no clothes.
The Labour Council research shows that once a CEO's salary exceeds
the average weekly wage by a factor of 20, there is a demonstrable
deterioration in company performance. What this means for unions
is that the debate about executive pay now transcends a moral
argument about corporate excess and becomes a very real issue
of job security for working people. If an executive takes home
a salary that is outside the 1:20 matrix there is a real chance
the company is in big trouble.
The union movement's challenge is to use this information strategically:
industrially, politically and financially. Industrially, workers
should be questioning the distribution of profits armed with
this research. The salary of executives becomes a legitimate
issue to be pursued during enterprise bargaining negotiations.
Politically, unions need to push governments to make decision
about corporate pay more transparent and accountable. The current
situation, where it is governed by the Australian Stock Exchange,
now a listed corporation itself, is an untenable conflict of
interest. We also need to convince Labour Governments to use
purchasing policy to force firms to moderate executive pay.
In the same way that Tony Abbott uses government funds to promote
individual contracts, Labour must use its financial levers to
promote corporate responsibility.
And financially, we must wake the sleeping giant that is the
union movement' s influence in superannuation - taking the next
step in protecting our members long term interest through our
stewardship of industry super funds. Fund trustees must seriously
question whether their member's retirement savings should be
invested in companies that pay extreme salaries, given the negative
impact on performance.
As researcher John Shields pointed out last week, the idea that
there is some rational global market for talented CEOs is a
myth that has been perpetuated by those at the top of the corporate
cabal. Like all else, this market is constructed. But that's
political theory; the message from this research is that when
you look at the numbers the claims for high CEO pay just do
not add up. The message for the Top End of Town is clear: the
party's over.
* For further information about Workers Online workers.labor.net.au/latest/
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