Is the outrage being directed against Australia Post and the $5.6 million it paid CEO Ahmed Fahour last financial year justified?
Well yes, absolutely.
But before throwing the first tomato, it’s important to be clear about where that anger should be directed and what needs to change.
Mr Fahour’s salary and bonuses have been on the public record before. The Australian reported last year that he earned $4.6 million in the 2013-14 financial year, but the story slipped by unnoticed.
So why all the fuss this time around?
Firstly, because Australia Post chose not to report Mr Fahour’s remuneration from its 2014-15 annual report onwards.
Secondly, when Australia Post was asked by a Senate estimates committee to provide the numbers, it requested they be kept private because it “could damage the commercial prospects of Australia Post” and “damage [directors’] privacy”, according to the committee’s chair, Liberal Senator James Paterson.
That secrecy backfired and brought a wave of opprobrium on social media – including the stunning fact, revealed by Business Insider, that an amount equal to half of Australia Post’s $36 million profit last year went into the pockets of just six executives.
Why the anger?
In Mr Fahour’s final full year as CEO of National Australia Bank, he took home combined remuneration of $7.3 million – and so his apologists may try to use the old “pay peanuts, get monkeys” argument to explain why $5.6 million looks reasonable.
It is not, for several reasons.
Firstly, the idea that a state-owned enterprise (SOE) is just a normal business, requiring free market incentive structures to flourish, is false.
Australia Post, like the previous publicly-owned incarnation of Telecom/Telstra, is a monopoly delivering consumer- and business-facing services.
In that respect it’s an enterprise with a client base as big as Centrelink and Medicare, which are run by government departments rather than an independent board.
Furthermore, although business leaders are reluctant to admit it, the public sector leaders who settle for smaller, but still fairly affluent, salaries can sometimes out-manage company bosses.
In 2014, KPMG’s global head of government Paul Kirby argued that “…we now have the UK’s leading global companies lining up trying to learn from the National Health Service about what they can do in their brewing business, their telco business, their retail business, their banking business, because the best practice is actually happening in the public sector”.
It’s not a universal rule, but neither is it guaranteed that a private sector boss will do well managing publicly-owned assets.
In Australia, former Alcatel boss Mike Quigley had a controversial reign at NBN Co, where he drew a combined remuneration package of around $2 million a year.
In the US, Treasury Secretary Hank Paulson had a chequered career spanning the first years of the global financial crisis, and he was earning just $183,500 – 4.5 per cent of his former $US40 million salary as CEO of Goldman Sachs.
Okay, so Mr Paulson didn’t need the money, but the comparative numbers still matter.
Australia’s highest-paid department heads, such as Martin Parkinson who heads up the Department of Prime Minister and Cabinet, Treasury chief John Fraser, ABC boss Michelle Guthrie and RBA boss Philip Lowe have salaries ranging from around $800,000 to $1 million.
Mr Fahour’s remuneration is five or six times that level. It’s 10 times the PM’s pay. And it’s 77 times the take-home pay of the median full-time wage earner. SEVENTY SEVEN times.
Time for change
No one is suggesting that Mr Fahour hasn’t done a good job – his transformation of Australia Post into the largest logistics firm supporting e-commerce in Australia is a landmark achievement.
But the question remains: why can Philip Lowe manage Australia’s monetary policy for a fifth of Mr Fahour’s earnings? Why can Janet Yellen manage US monetary policy and the global reserve currency for $US180,000? Why is the CEO of Norway’s trillion-dollar sovereign wealth fund happy with the equivalent of $A990,000
The answer, according to Peter Strong, CEO of the Council of Small Business of Australia, is that Mr Fahour is part of a small but dominant group of big-company directors, politicians past and present and some big union leaders, who together “belong to the same club”.
The same luminaries – people such as Catherine Livingstone, Richard Goyder, Gail Kelly, Ken Henry, Jennifer Westacott, Andrew Thorburn, Andrew Forrest, Peter Costello, Steve Bracks and Frank Lowey – cross-pollinate the nation’s boards to such an extent that Mr Strong calls them the “business ruling class”.
That, he argues, is how a culture builds in which the Australia Post board – which features former or present directors of Telstra, AGL, the Liberal Party, Woolworths, AMP and IAG – can wave through such extraordinary sums.
The counter-argument is that these directors are very good at what they do and should be left alone to do it.
But that is again missing the point. Around the world, the cultures of pure private-sector management and public management are kept separate – even as the top directors or mandarins migrate between them.
Australia’s ‘business ruling class’ has imbued our state-owned enterprises with too much respect for the ways of the private sector, and too little respect for the idea of public service.
If other nations don’t make that mistake, neither should we.
To read more columns by Rob Burgess click here.