The economy might be flirting with another downturn, but take heart: the nation’s CEOs are doing alright. Recent research shows the pay gap between executives and their subordinates soared just before the pandemic. Qantas CEO Alan Joyce was paid 126 times the average Australian worker’s salary in 2019, while Woolworths CEO Brad Banducci netted 143 times the average.
The pandemic initially clipped many CEOs’ wings. ASX100 company bosses’ cash pay fell by over a quarter – the biggest hit on record – to an average $2 million. But when options and shares are included, that slide looks far more modest – just 3.6%, to an average $4 million.
There isn’t much solid data for 2021 yet, but several signs point to a return to pre-pandemic highs. Financial markets are roaring again, giving the half of CEOs’ bounty made up of stocks and options a healthy boost. Prominent companies are again shelling out lavish top-end bonuses – take PwC who, fresh from helping the government botch our vaccine rollout, gifted its partners an 18% raise. And CEOs elsewhere in the world are again raking it in; in the US the virus barely halted it.
This reflects a return to a long-term trend. CEO pay in the US rose nearly 900% from 1978-2012, and Australia wasn’t far behind. It has moderated a little since, but so has wage growth for the rest of us.
Few people think CEOs have gotten 900% better at their jobs since the ’80s. And such staggering inequality can undermine social cohesion and trust. So, what can we do about it?
Opening up the account books
Last week, activist shareholders and advisory groups proposed a solution to the ABC’s Daniel Ziffer: require companies to publicly disclose their “CEO pay ratio” (how many multiples of their median worker’s wage their bosses get paid).
This rule is already legislated in the US and UK, and was taken by Labor to the 2019 election. And it’s certainly not a bad idea. Companies already calculate this figure for their remuneration committees, and making it transparent would provide journalists, unionists and shareholders with more information to pressure the nation’s C-suites.
For some CEOs, it could even help them improve their public image. In the absence of an internal comparison, commentators will frequently compare executive salaries to averages across the whole economy (as I did above), whereas many leading companies pay above-average wages.
Shareholders hold the powerful to account – then pocket the windfall
The only problem with this proposal is, while it can help reduce CEOs’ pay packets, workers rarely see any of the savings trickle down to them.
Research from the University of Technology Sydney suggests that shareholders will sometimes react by voting to reject exorbitant executive salary proposals, but they usually take the leftovers for themselves via extra dividends, instead of reinvesting in the firm’s workforce.
As most shares are owned by the wealthiest 10% of Australians, the policy would merely shuffle wealth around between the already-wealthy.
We’ve got a minimum wage. What about a maximum one?
Transparency is fine, but merely knowing how much more than you your boss makes won’t help you earn more. For that, we need redistributive policies.
One option floated by former UK Labour leader Jeremy Corbyn and hard-left French presidential candidate Jean-Luc Mélenchon was to impose a ‘maximum income’, above which individuals would be taxed at 100%.
This might help the pernicious social effects of Gilded Age-like inequality (provided the rich don’t move their wealth offshore or stash it in assets that don’t show up as “income”), but it also wouldn’t ensure workers get ahead.
A better way — tying bosses’ raises to their employees’
An alternative is to impose higher taxes on executive wages that exceed a certain ratio of their workers’ pay. Several US states have done it and US Congress is now considering a bill that would extend these rules nationwide.
This would incentivise top-earning managers who want to keep more of their bonuses to give their subordinates an equivalent raise too. Some organisations already do this voluntarily – take British architect Lord Richard Rogers, whose firm has a maximum pay ratio of 6:1. Shareholder may still object to bumper pay deals dragging on their dividends, but more managers would use their influential voices to urge an equitable across-the-board boost.
Sluggish wage growth is one of the biggest issues facing our economy, and the corporate elite have proven obstinate in their refusal to get it moving again. Perhaps only when their pay is on the line will they start to lift ours too.
I would consider taxing the company for wages in excess of, say, $1m. So if a CEO can negotiate a pay of $10m, make it cost the company 2, 3, or even 5 times that.
Also make it illegal for bonuses to paid to executives without an equivalent bonus paid to the workforce. If a CEO gets and end of year bonus equivalent to 50% of their base pay, so does each and every worker in the company.
I’d suggest executive salaries should be set by the Fair Work Commission, but then the Commission would be stacked with pro-business types even more than it is now.
Why not just tax very high incomes at a much higher rate?
Yep, like 90% in the good ol’ USA back in the 60’s.
The Beatles’ song “Taxman” might have been responsible for so many misunderstanding the social equity of progressive tax rates.
If more voters, especially retirees, were made aware of the Gini Coefficient for Australia compared to other nations they may not assume that Australians or MPs share any ideal on equality.
We are all libertarian and neo-liberal now, looking after our own ‘freedom and liberty’ from equality in society as sadly too many also have a need to look down on others, while boasting about property values…..
“require companies to publicly disclose their “CEO pay ratio” (how many multiples of their median worker’s wage their bosses get paid). This rule is already legislated in the US and UK, and was taken by Labor to the 2019 election. And it’s certainly not a bad idea. Companies already calculate this figure for their remuneration committees…”
In fact it certainly is a bad idea. For a start, if it was any good, we would see it restraining CEO pay in those countries where it applies. More to the poiont, it is just as flawed as the remuneration committee scam which was also supposed to introduce some restraint. The actual result of these committees comparing CEOs to other CEOs is to create a league table where every CEO demands above average rewards, and every company wants to be able to demonstrate its CEO gets above average rewards because obviously this proves they have an above average or even exceptional CEO. Who the hell would want to show they had a mediocre or worse CEO?
Disclosing the CEO pay ratio will drive up CEO pay.
Disclosure is a waste of time – as if CEOs care. Most would see it as a fair price so long as they continue to pocket exorbitant paycheques. Fact is public disclosure may risk increasing CEO pay – because it creates a public benchmark. All the recruiters and boards now know how much they need to pay to be competitive with the (previously opaque) market.
Too true, and given that the Federal government and those connected to them are not shy in claiming how entitled they are to their riches and their power, printing their wage on a website (or even their forehead, for that matter) would not overly concern them. It may, in fact, cause a spike in exec wages, as they constantly leapfrog each other as they try and get ahead of those at the top of the market. It’s the same reason why salaries inside organisations are often secret (to allow them to pay less to poor negotiators). And of course, raise taxes to high income earners, and they will simply direct their funds into tax-effective vehicles like trusts.
The least-worst option is to raise the power of the shareholders to keep the exec pay to a realistic level. They may try and pocket the extra for themselves, but at least Mr and Ms Everyday have the opportunity to share in the largesse via their superannuation. After all, the pool of superannuants is several orders of magnitude greater than the pool of top execs.