The Rudd government has endorsed the Productivity Commission's plan to crack down on executive pay, giving shareholders more say and making it harder for executives to influence their own salary packages.
The AMWU submission to the inquiry called on the Federal government to use its powers to regulate inflated executive salaries.
“All the evidence shows that inflated executive pay fails to deliver, from both a social equity and a performance perspective,” said AMWU National Secretary, Dave Oliver.
”Any move by the government to reign in these outrageous salaries should be welcomed.”
The Productivity Commission has now released 17 recommendations that are designed to curb executives' ability to set, inappropriately influence and vote on their own pay.
The commission has backed a call supported by the AMWU to “empower shareholders” by giving them more authority to express their displeasure about executive greed.
This includes a "two strikes" rule which means that if 25 per cent of shareholders reject a company's remuneration report for two consecutive years, a meeting must be called and all directors must stand for election within 90 days.
The commission also wants to make corporate cowboys hand back their bonuses if they do not live up to their promises.
But the commission has not endorsed the AMWU’s proposal that the government:
- Make executive pay restraint a condition of doing business with the government or receiving government subsidies
- Use the taxation system to curb excessive CEO pay
Finance Minister Chris Bowen says he plans to introduce the legislation later this year.
The AMWU’s submission to the inquiry stated that Australians went without pay rises and bonuses to help their companies survive the Global Financial Crisis. They are still bearing the burden of this crisis, while company boards have awarded company directors with large pay packets.
“Ordinary workers now see their job security imperilled and yet the executives who were at the helm as this came to pass have reaped windfall compensation,” the submission said.
The $30million payout given to former Telstra boss, Sol Trujillo, was cited in the AMWU’s submission an example of why Australians are “angry” about executive pay levels.
“The high level of compensation the Telstra board saw fit to confer on Mr Trujillo only fans discontent in the community; and with no one person or institution being bigger or better than the community itself, it is proper for the community’s representatives, namely, legislators, to intervene.”
It also pointed out that the excessive wealth of executives stands in marked contrast to high ranking public servants who receive far less money.
For example, Prime Minister Kevin Rudd, the highest paid member of Australia’s parliament, earns $340,000 a year, while the CEO of BHP Billiton earns $12 million.
The AMWU submission stated that these excessive corporate salaries exist because:
- Large wealthy companies have millions of dollars to spare on CEO pay
- Investor and analysts’ demands dynamic and charismatic leadership in order to raise a company’s shares price and profile
- Shareholders are not given a proper say in the appointment and remuneration of a CEO
- There is a distorted labour market for top rated and celebrity CEOs
You may ask why it matters if successful companies generously reward their executives?
The AMWU says the answer is fairness and social cohesion.
“If the captains of industry are seen as overly greedy it undermines social cohesion and faith in an important institution— companies—especially so when they cut back on staff and services or raise the price of their products.”