In the midst of a global recession, few issues have galvanized public anger in developed countries as much as the extraordinary sight of senior company executives helping themselves to huge pay rises, whilst ordinary people are thrown onto the unemployment scrap heap or forced to accept wage freezes or shorter working hours.
The issue has been on a slow burn around the world for many years, but recent economic events have thrown into stark relief the sheer obscenity of excessive executive pay, contrasted with how the great majority of the world’s workers are expected to get by.
Over the period 1990 to 2005 on average Australian workers’ wages went up by 85% while at the big end of town the increase was 564%.
Frequently executives attempt to justify their exorbitant increases through the use of so called “independent” remuneration consultants. Inevitably these guns for hire recommend increases that are above the median for other high fliers in similar jobs.
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It’s a case of keeping your paymaster happy and pushing the bar higher.
The irony is that when it came to trade unions bargaining for their members, this approach, known in industrial relations parlance as “comparative wage justice,” has been frowned upon by employers and governments for the last 20 years.
Clearly it’s a case of “do as I say not as I do,” with Business Council of Australia CEOs’ pay increasing from 18 times average weekly earnings in 1990 to 63 times in 2005.
Most recently the Sol Trujillo’s and others have helped fuel the contempt many ordinary people feel for these “corporate cowboys” who seem to be able to pay themselves whatever they please, almost in defiance of economic realities and public sentiment.
Like on an increasing number of fronts, the US is undeniably ahead of Australia in addressing this issue. Here, the free market fetishists and zealous deregulators continue to hold sway. Prescriptive solutions to address excessive executive remuneration are still being resisted in the corridors of power.
Yet at the Government’s fingertips there is a potentially powerful remedy to this problem that need not involve that most heinous of public policy crimes, regulation.
The current Productivity Commission inquiry into executive remuneration could and should be asked to develop “indicative” or “best practice” guidelines for Australian business, that define fair and appropriate levels of executive remuneration across a range of corporate settings.
The Government should then determine that these guidelines need to be adopted and complied with by any Australian business tendering for Government contracts in the future.
If the Government then used the COAG process to drive this approach across state and local government the combined effect would be a powerful motivator to keep executive pay in line with community expectations — without the need for prescriptive regulation or legislation.
The message would be simple, if corporate Australia wants Government contracts — wants a slice of the stimulus money — it would be required to sign on to Government guidelines that set out clearly what is a reasonable level of executive remuneration and carry them out.
Ordinary working people are accepting wage freezes and fewer hours across Australia right now because of the recession and it is unarguably time for corporate Australia to improve its tarnished image by embracing boardroom standards that are ethical and transparent.
We have heard a lot from our Federal Government during this recession about how the nation’s employers and employees should ‘pull together’ to protect jobs and the economy. Well, here is an opportunity for the Government to match words and deeds. For the sake of economic reality, for the sake of social inclusion, for the sake of basic human decency, the obscenity of multi million-dollar pay rises and payouts must end.
Ensuring that only businesses that comply with government guidelines benefit from public contracts is a Howard Government formula that Rudd Labor would do well to learn from.
John Sutton is National Secretary of the Construction Forestry Mining Energy Union (CFMEU).