Here’s a hot tip for the working class: ditch your union and hire remuneration consultants.

It sure works for CEOs who can expect the same sort of increase in their short-term salary component as last year’s 27.7%, according to remuneration consultants Hay Group. Gee, aren’t we lucky we have AWAs to keep other wages down.

Of course remuneration consultants tend to have a vested interest in talking the market up. As we’ve written before, consultants, head hunters, boards and CEOs are locked in a self-serving cycle of remuneration inflation.

But if that’s not enough for the overpaid men at the top, there’s always the lure of a leveraged buyout by jumping into bed the private equiteers and never mind the conflicts of interest.

We live in a rather strange world when even the Reserve Bank starts voicing concern about those conflicts – a certain broadening of its monetary responsibilities – but that’s what it did yesterday, as neatly summarised by David Uren in the Oz:

The Reserve Bank has warned that private equity deals produce conflicts of interest that could increase the risk of insider trading and “misconduct” by senior executives and company advisers.

In its six-monthly Financial Stability Review, the central bank raises doubts about claims that publicly-listed companies generally produce higher returns after being taken over by private equity operators, describing the evidence as “mixed”…

The bank acknowledges that the threat of takeover by a private equity fund is an important discipline on existing managers, providing an incentive for them to manage their assets as efficiently as possible.

But it warns that some private equity deals “may create pressures that alone or in combination, can lead to poor behaviour or misconduct that threatens the integrity of the markets in which transactions take place”.

“While the same issues arise in many other capital market transactions, private equity transactions may create incentives for misconduct in areas not always present in more traditional merger and acquisitions activity,” it says.

“In LBOs in which senior executives are offered the opportunity to participate in the bidding consortium, there can be a tension between their personal interests and their duty to act in the interests of the existing shareholders.”

And there ends the Martin Place lesson for the likes of Qantas and Alinta boards.

Heavens knows the amounts shareholders are paying CEOs should be more than enough to buy their total loyalty, but as GB Shaw almost said, once you establish someone can be bought, it’s only a matter of price.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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