Treasurer Scott Morrison has refused to name and shame the nation’s highest-paid CEOs.
Mr Morrison acknowledged many Australians are “very anxious” about the issue, but told Parliament on Monday the government should not intervene because Australia is a “free enterprise country”.
He was responding to a question from Queensland MP Bob Katter, who asked if the Treasurer would force companies to report the disparity between CEO and worker pay, as is done in the UK.
“That disparity is as you say it is. It is as you say it is. But it is up to those companies to get the balance right.”
Watch Mr Morrison’s full response here:
Pay disparity has been a hot topic ever since the global financial crisis. Recent scandals involving highly-paid executives have only intensified the scrutiny.
Wells Fargo CEO John Stumpf resigned this month in the US after the discovery of mass fraud perpetrated by his employees in order to meet onerous sales targets. Mr Stumpf surrendered $US41 million of bonuses, but is expected to get a golden handshake worth about $US130 million.
From January 2017, US companies will be required to report how many times larger their CEOs’ pay packet is than the company’s median worker.
The UK enacted a similar scheme in October 2013. As Mr Katter noted, Australia has no such scheme.
Dr Andy Schmulow, a finance sector regulation expert at the University of Western Australia, said Australia needs a name and shame register, but warned it would be a “drop in the ocean”.
“In Australia we are emulating the worst of the USA. Not the helping hand of capitalism but the grabbing hand,” Dr Schmulow said.
“It is greed and plunder based on the notion that the directors are solely responsible for the profits of the company, and the shareholders were virtually irrelevant in providing the capital to establish a firm in which those directors now have a job.
“Or worse, that as directors they are somehow a sort of quasi-mythical creature and it is only they who could make these sorts of profits. The fellow who ran Lehmann Bros into the ground was paid $800 million in 10 years. Jesus Christ himself couldn’t add $800 million of value to a company in that period of time.”
The CEOs of Australia’s top 100 companies were paid an average of $1.86 million in 2015 before shares and bonuses, the Australian Council of Superannuation Investors (ACSI) reported in August.
This was down 3.3 per cent on the previous year, and close to a decade low, which ACSI attributed to greater scrutiny from institutional shareholders.
If the government were to enforce a reporting scheme, it would likely reveal that many of our chief executives are paid comparatively more than their counterparts in many developed nations.
For example, Australian CEOs were paid 93 times average worker wages, a higher ratio than Sweden (89), the UK (84) and Japan (67), a Harvard University study calculated in 2014.
A 2003 study by Professor John Shields, funded by the Labour Council of NSW, revealed that executive and CEO pay diverged sharply from average weekly earnings in Australia from 1984 onwards.
The study concluded that to get ideal performance outcomes, companies should pay their executives between 17 and 24 times the average wage. Beyond that, company performance worsened.
This accords with the rule devised by famous US management theorist Peter Drucker, who was of the firm view that CEO pay should not exceed 20-to-1 because higher ratios impede teamwork, trust and morale.
Julie Walker, an accounting professor at The University of Queensland, compiled the following interactive graphic, which illustrates the pay disparity at many of the biggest companies.