Upon first arriving in Hollywood in the 20s to embark on a screenwriting career, Herman Mankiewicz supposedly sent a cable back to a journalistic buddy in New York: “Millions are to be grabbed out here and your only competition is idiots. Don’t let this get around.”
One imagines similar communiqués zinging back and forth between entrepreneurs just starting out in the CEO caper. Where else, after all, could you fail as miserably as the board of Pacific Brands and yet receive a hefty reward for your troubles?
As Shaun Carney says:
What looks like gargantuan money to 95 per cent of the population is, in the rarefied world of business executives, capable of being seen as modest. That is how the chairman of Pacific Brands portrayed the salary paid to the company’s chief executive, Sue Morphet, after she declared her intention to sack 1850 employees.
It turns out that Morphet’s pay — a base salary of $700,000 and a bonus of up to the same amount each year — is less than the amount paid to her predecessor, who was on a base of $1.56 million. Compared with, say, the recently departed head of Telstra, Sol Trujillo, who took home about $13 million a year and pocketed $3 million just for leaving his job, Morphet’s package is small beer.
But compared with just about everyone she would meet, Morphet is incredibly well paid. Even if she were to receive no bonus at all this year, she still would have received upwards of $13,000 a week. This would mean that she would earn the equivalent of the average annual wage every month.
Who would dare to defend such figures? Why, Janet Albrechtsen, of course.
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If shareholders exercise more control over corporate boards, she says, they’ll be interfering in things they don’t properly understand. Renumeration should be an operational decision. Too much regulation would spur “a stampede of talent” out of Australian private companies.
“Why work in Australia at all?” she says. “Why not join the already significant Aussie diaspora in Hong Kong, the Middle East, New York or London?”
It’s a fair question, given that opportunities for corporate plunder seem to have been even more lucrative abroad. One need only think of Bernie Madoff, whose $US50 billion empire seems to have been constructed upon a giant Ponzi scheme — a grander version of those pyramid sales swindles that turn up in get-rich-quick manuals. In the UK, there’s Sir Fred Goodwin, who steered the Royal Bank of Scotland into a £24.1 billion loss and yet has been rewarded for his part in the greatest corporate fiasco in British history with a pension of a million Australian dollars a year for the rest of his life.
Most of us do not look at these sorry episodes and then think, gosh, Australia needs some more of that. But then, not coincidentally, most of us don’t write columns for the Oz.
There is the need to not strangle incentive. Regrettably the Coalition — which should have this buried in its DNA — seems to be pandering to the opposite instinct. They are now beset with the jealousy and class war gene. We accept easily the vast amounts paid to golfers, tennis players, rock stars and actors. No one ever whines about the pay discrepancy between a key grip and lead actor. Why do we constantly invoke such meaningless comparisons in the corporate sphere? We should be encouraging our best and brightest to run our most productive enterprises.
As it happens, Greg Brogan of Executive Pay Systems has used a statistical measure to assess corporate productivity. Lo and behold, the companies he studied have, on average, increased executive pay at three to five times the rate of performance improvement (if the latter’s measured according in terms of return on equity, share price and total shareholder returns). So much, then, for productivity.
But what’s more important is that sneering comparison between the key grip and the movie star, which, as soon as you think about it, undermines the whole argument. For we do expect top performances from film crews — just like we do from all kinds of ordinary people in ordinary jobs.
There’s no better example than the ongoing Victorian bushfire crisis. Most of the CFA firefighters weren’t paid at all for risking their lives. But what would we have said about a volunteer who announced that, unless he received $13,000 a week for his troubles, he’d stay at home? So why should such people be held to a different standard? Is the work of a firefighter less dangerous, less skilled, less socially important than whatever it is that Sue Morphet allegedly does? Equally, does anyone need Sir Fred Goodwin as much as they need a nurse or a coal miner or any number of normal, everyday occupations?
Most of us do our jobs to the best of our abilities without requiring the vast sums paid to coke-addled starlets or corporate directors. The defence of executive remuneration rests upon a logic that’s never applied anywhere else. It’s the logical extension of neo-liberal economics, a system that knows the price of everything and the value of nothing.