Despite a freshly printed Productivity Commission report sitting on minister Chris Bowen’s desk, if Alcoholics Anonymous are right, the executive pay problem is certainly far from being solved. As any recovering addict will attest, the first step to recovery is admitting you have a problem — and in the eyes of company directors, it appears that executive remuneration is not a concern.

Earlier this week, the Financial Review’s Andrew Cornell canvassed the views of Australia’s business elite — hand-picked company directors appointed (and themselves handsomely paid) to represent the interests of otherwise largely powerless shareholders and ensure that agency costs (that is, the cost of hiring managers who are distinct from the owners of the business), are minimised.

The views expressed are not encouraging.

A company director told Cornell:

When you sit to hire someone, it’s a negotiation. When you’re getting rid of someone it’s about what size cheque to get rid of them — that’s the reality … no one on a board wants to pay any more than necessary, but these people criticising what happens have never run a business, never sat on a board.

The notion that boards pay “no more than necessary” appears to be contradicted by the over-sized pay packets received by executives in recent years. The other problem is that directors appear to be relying on the notion that paying more for executives leads to some sort of improvement in ability. If that were the case, one would expect the executive team from Babcock & Brown, which was one of the highest paid in the country, to have delivered outstanding shareholder returns. (In reality, Babcock destroyed billions of dollars of shareholder capital).

Similarly, one would assume that former Qantas chief Geoff Dixon was the world’s best aviation executive (he was paid more in cash than any other airline boss on earth). In reality, Qantas underperformed the global airline index during Dixon’s tenure — a mean feat given the abhorrent performance of the airline index.

As for the notion that boards pay termination payments simply “to get rid of” faltering executives, that fails to explain why Oxiana paid Owen Hegarty an ex gratia (a fancy term for not being legally owing) amount of $8.5 million despite Hegerty leading the near company-destroying merger with Zinifex. Similarly, it is contradicted by Telstra and Qantas making multimillion “termination payments” to Sol Trujillo and Dixon respectively despite the pair publicly stating that they were retiring from their roles.

Leigh Clifford, Qantas’ current chairman, told Cornell that “boards and remuneration committees are obviously alert to the mood, their antenna are up, they are responding. You can see the shift already occurring”. Perhaps Clifford was referring to companies other than the one he oversees, which last year paid Dixon $10.7 million for half a year’s work. That was merely one year after Qantas’ remuneration report was rejected by more than 40% of shareholders. Dixon also received several million dollars for a change to superannuation laws that had no effect.

Respected company director and CBA chair John Schubert told the Financial Review today that any moves to introduce deferred bonus payments could have “unintended consequences”. As opposed to paying huge bonuses in cash, which have the intended consequence of short-term risk taking for long-term loss, as occurred at Bear Sterns, Lehman Brothers, Merrill Lynch, Babcock and a host of other heavily geared financial companies. Any further alignment between executives and shareholders (of which, deferring bonuses for several years is a key element) should be welcomed by people such as  Schubert, who are paid by shareholders to represent their interests, not merely to enrich risk-taking executives.

So forget about reports and cosmetic changes to how executives are paid. Until company directors start to realise that money doesn’t necessarily buy quality executives, don’t expect the gravy train to dry up any time soon.

The US Government yesterday announced that the effect of its massive $US787 billion ($A850 billion) stimulus package are starting to wear thin, with the country managing to escape recession thanks to the largesse.

Of course, the Keynesian spending had a price — in total, and estimated two million jobs were “created or saved” thanks to the spending. Even if one were to believe that estimate (which is most likely grossly overstated), that means each job cost American taxpayers (mostly, future taxpayers) about $US393,000 each. Further, much of the stimulus was pumped into zombie, risk-taking financial institutions or buying majority stakes in poorly run companies such as General Motors.

To pay for the stimulus, the US has had to borrow from overseas trading partners (such as  China) and print money (which will inevitably lead to inflation, great damaging the living standards of America’s middle class). But that is tomorrow’s problem.