Business fat cats lashed over pay
By Jacob Saulwick | smh.com.au | 06 August
The cycle of excessive reward for private sector executives has been lashed by the body that sets pay for judges and politicians, which says top public servants work just as hard for much less.
The Remuneration Tribunal, which decides the salaries of defence force chiefs, judges, politicians and public servants has weighed into the debate on corporate salaries, claiming increased financial reward does not lead to better performance.
It also argues against claims made by business leaders and pay consultants that there are a limited number of executives capable of leading major corporations; and that performance pay is needed to make executives act in their corporation's best interest.
The tribunal sets remuneration for the chief of defence ($428,560), who leads a permanent force of more than 50,000, and the Tax Commissioner ($400,960), with a staff of 20,000 and whose reach touches every working-age Australian.
"The tribunal wonders if any office in any private sector entity exercises comparable responsibilities or is subject to like levels of accountability," says its submission to one of two government inquiries into executive pay.
The tribunal argues companies and boards setting pay in the private sector do not factor in the innate sense of pride that comes from filling top positions.
This "psychic income" means people would be prepared to do their jobs without lavish financial reward.
"We believe that the private sector should acknowledge that certain very senior positions involve very considerable aspects of prestige, honour, power and influence, and that the remuneration arrangements for appointees to such positions should accept and reflect this," says the submission by the president of the tribunal, John Conde.
It also takes aim at professional remuneration consultants used by corporate boards. In making recommendations, these consultants often refer to advice given by other consultants.
"Such 'self-referencing' is a recipe for movements in one direction only – upwards – or, even worse, leapfrogging," the tribunal says.
The Prime Minister, Kevin Rudd, has characterised exorbitant pay-packets in the banking sector as a key part of the "extreme capitalism" that led to the financial crisis.
The tribunal's views jar with the prevailing business opinion, which says the pay of top executives needs to be linked to the performance of the company.
But the public sector – including judges and the military, as well as public servants – do not receive performance pay. This "experience would suggest excellence on the job can be achieved without excessive financial reward".
As part of a review of the pay of departmental secretaries, the tribunal has compared the pay and responsibilities of top public servants with chief executives.
There are a lot of similarities, it finds, but public servant salaries are not used when comparing levels of pay in the private sector.
"There is an argument that the remuneration of public offices should be accorded some weight in setting appropriate remuneration for senior private sector positions," the tribunal says.
The inquiry by the Australian Prudential Regulation Authority – whose chairman John Laker earns $603,130, compared to the Commonwealth Bank's Ralph Norris who earned $8.6 million last year – has ruled out looking at absolute levels of pay.
It is only looking at whether the structure of bankers' pay entices them to take risks.
First published by Smh.com.au on August 06 2009
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