Doug Cameron (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I rise on an issue that I have been interested in and involved in for many years; and that is the excessive salaries that are paid to executives both in Australia and overseas. I was keen to rise tonight on the basis of an article that appeared in the Mercury, the voice of Tasmania. The headline is, ‘Directors’ payout enrages workers’. ACL is a company that I visited several times in my previous occupation as National Secretary of the Australian Manufacturing Workers Union. It is a company that has had solid support from government, both state and federal, over many years. It is a company that has enjoyed a very loyal and productive workforce over the years. This company is now in receivership, with administrators called in on 26 August.

The employees attended a creditors’ meeting on Monday, 7 September and their union, the AMWU, estimates that the employees are owed about $30 million in entitlements. The company does not have $30 million and GEERS, the safety net scheme, will cover approximately $10 million of these workers’ entitlements. The issue that also arises is the treatment of the workers by this company and the treatment of the executives by the company. The report in the Mercury indicates that two directors, Mike Saward and John Capuano, received a total of $660,000 in redundancy payments at the same time the company was seeking federal government financial support last year. Workers had agreed to reduce their hours from 38 to 32 hours a week at the same time the directors were paying themselves redundancies.

These are workers on average weekly earnings. These are workers not on a high salary and for them to take a six-hour cut in their take home pay is a substantial sacrifice for them. But what we have here is what we see more and more of in this country—that the workers are asked to make a sacrifice while the bosses in the big end of town are not prepared to make any sacrifices.

That brings me to the Senate Standing Committee on Economics hearing into executive termination pay that I participated in last week. We had a hearing in Sydney. After being at that hearing into executive salaries I determined that I would make some comments about executive salaries and my long-term interest in trying to ensure some fairness and equity on executive salaries.

Some of the main points from the economics committee report are these. The real salaries of Australian chief executive officers have risen by an estimated 470 per cent since 1971 compared to 54 per cent growth in real average weekly earnings. CEO salaries have exploded in Australia. The bulk of this explosion in executive salaries has been in the last decade or so. Among ASX top 100 companies, between 2001 and 2007, average fixed remuneration of CEOs increased by 106 per cent. The fixed remuneration of the highest paid CEO increased by 335 per cent. Average short-term incentive payments increased by 283 per cent and average total remuneration of chief executive officers increased by 125.8 per cent.

Termination payments, irrespective of the success or otherwise of the executives, have followed the same trajectory. Some of the most egregious examples are: Owen Hegarty of OZ Minerals, $8.35 million, which was 6.42 times his base salary; John Anderson from Consolidated Media, $15 million, which was 4.68 times annual salary; Kim Edwards of Transurban, $5.2 million—and in the following year the share price of Transurban fell from $6.60 to $3.91; John Ellice-Flint from Santos, $16 million; Chris Cuffe from Colonial First State, $32 million; and Sol Trujillo from Telstra, $3 million.

I compare that to the treatment of the ACL workers in Tasmania, who are struggling to get their base entitlements while the big end of town is rolling in the cash that should be building companies for the future, rolling in the cash that should be going out to shareholders and rolling in the cash that should be in the economy doing some good. It is absolutely disgraceful the way these executive salaries are out of all proportion to the input that these executives have to the companies that they are employed by.

One of the big problems that we discovered at the committee hearing was that executive salaries are set on the recommendation of remuneration consultants. There is an industry out there for remuneration consultants. Whereas workers in this country are told that comparative wage justice cannot be used to set a worker’s wage, comparative wage justice is the methodology that is being used by these remuneration consultants to ratchet up the wages of chief executives. The reason is that all of the wages are being set above the median salary. That is an issue for the boards of companies and the chief executives who are the recipients of these increases.

At the committee hearing John Colvin, the CEO of the Australian Institute of Company Directors, said:

Exactly. Comparative wage justice is just as strong at the top as it is anywhere else.

Well I have to say, John Colvin, comparative wage justice is not strong elsewhere. It is the big end of town which is benefiting from comparative wage justice. Peter McAuley, from the remuneration consultants Guerdon Associates, in response to the question, ‘Is there an element of comparative wage justice in there?’ replied:

That is probably a reasonable way to put it. It is also … impacted by competitiveness and availability of talent.

Professor David Peetz described this process as ‘asymmetric pattern bargaining’. The first asymmetry is that the bargaining is not designed to bring everyone up to a common mean but, rather, to a position above the mean. The second asymmetry is that there is no effective countervailing force at the table—the boards are ineffective in dealing with this issue. The third asymmetry is that the upward movement when times are good is not matched by downward movement when times are bad.

CEOs are effectively setting their own pay. Boards, selected on the recommendation of CEOs in consultation with other members of the executive class, hire remuneration consultants—also often chosen by the CEO—to recommend that the chief executive officer is worth more than the median salary, which itself is rising rapidly because it is never recommended that anyone be paid at or below the median.

The only constraint on executive pay is public outrage and the expression of that outrage in regulation by the parliament. There is no hard evidence or hard numbers to support claims for ever higher executive salaries. It is absurd that the executive class is the only labour market segment for which this is the case. The scope of the information available to shareholders so that they can make better informed decisions about executive remuneration and termination benefits should be considerably widened.

I have made a number of recommendations in my additional comments to the report. I feel strongly about giving shareholders, who will make non-binding decisions on remuneration as well as decisions in relation to termination outcomes, more information to make proper decisions about executive salaries. I have recommended that the manner in which the value of a benefit is calculated, whether or not the benefit is a payment or otherwise and whether or not the value of the benefit is known at the time of the disclosure, must be there for shareholders to understand.

Shareholders need to know whether the remuneration package that forms the basis of a termination payment was set as the result of advice from an executive remuneration consultant or similar entity. Shareholders need to know that this is not a scientific approach based on productivity or competence. This is about comparative wage justice and it is about remuneration consultants setting the barrier higher and higher in terms of these executive salaries.

Shareholders should also be told the quantum of the termination payment, expressed as a ratio of the executive’s normal weekly salary. It should not be a case of, ‘Well, they’re getting three years of salary.’ Ordinary workers have their redundancy provisions set out in relation to how many weeks pay per year of service. There should be a common measurement across this country. Then we will see that some of these executives are picking up about 50 weeks per year of service in their terminations, compared with a normal worker who, if they are lucky, might pick up two weeks per year of service.

Shareholders should also be advised of the nature and source of any and all advice received by the board or any board nominee in relation to the decision to award the benefit, and the determination of the quantum of the benefit. If the decision is approved by the general meeting, and it is based on advice from an outside consultant or other arms-length entity, shareholders should be told the value of any contract for service, for whatever purpose, between the company and that entity. Shareholders are entitled to know how much these executives and these boards are paying the remuneration consultants, who are setting the standards higher and higher for executive salaries in this country. There should also be a schedule setting out the formula used for calculating the termination payment during the term of the recipient’s employment with the company, and whether that was set at a level above or below the median remuneration of comparable employees in the industry or sector occupied by the company—and by how much.

There should also be a schedule setting out increases in the recipient’s remuneration during the term of the recipient’s employment with the company compared with movements over the same period in the company’s turnover, its profitability, its productivity, its return to shareholders and its capital investment. Why shouldn’t these executives, their salaries and their termination payments be measured against what we are saying ordinary workers should be measured against—that is, productivity, improvement in investment, return to shareholders and the turnover of the company? That is missing for the executive class in this country.

I have also laid out what I believe are a number of issues that the Productivity Commission should inquire into. They should inquire into whether there has been any social or economic benefit as a result of the growth in executive remuneration over the past 25 years. I fail to understand or see what social benefit there is for these massive executive salaries that do not apply in any structured or proper way in this country. I do not see any huge increases in productivity in terms of the executive salaries. When you measure productivity and growth, and when you measure executive salaries, you see that executive salaries are rocketing ahead of growth in these indicators that everyone else in this country is judged upon.

I have asked Allan Fels and the Productivity Commission to also consider a range of key performance indicators against which increases in executive remuneration can be measured. I think it is incumbent upon the Productivity Commission, who lecture workers incessantly about the need for improved productivity and profitability, who use neoliberal language against ordinary workers, to start using some tests against executives in this country, whose salaries are going through the roof. I think there have to be performance indicators that set out what executive remuneration should be measured against at a national level, a sector level and an enterprise level. And the indicators should be published annually, to facilitate improved decision making by boards and by shareholders on executive remuneration.

The Productivity Commission should also be examining the role of executive remuneration consultants in facilitating spiralling growth in executive salaries, including their role in promoting comparative wage justice. I just think it is outrageous that workers in Tasmania cannot be guaranteed their entitlements and yet executives in the same company are plundering that company, in terms of their own wealth and their own remuneration, while asking workers to cut their hours, asking workers to take pay cuts, asking workers to be more productive. It is one rule for the executive class and another rule for the working class in this country.

It beggars belief that we are not making more of this and the issues that it raises, because if we do have this inequity continue then it will not just be an economic inequity in this country; it will be an ever increasing social inequity—and, when you have social inequity rising to such a level, you will have social dislocation. If we have this type of social dislocation that we see in other countries in Australia, that is not in the national interest. I take the view that sacrifice should be made—and it is not a great sacrifice to ask the big end of town to behave in a proper manner in terms of executive salaries. It is not a big sacrifice for the big end of town to be more open and clear in how they set their salaries and how they set their termination payments.

I am pleased the government has taken a first step—I hope it is a first step—to try and bring some reasonableness to executive salary termination payments in this country. I am proud that this government has taken that decision. Change can be made. It cannot just be to let the market rip. It cannot just be to let the executive remuneration specialists ratchet up executive pay continually in this country. Fairness, equity and justice demand that the parliament looks at this and actually says: enough is enough. The executive class in this country should actually be delivering something for the good of the country.

I challenge the Productivity Commission to tell the parliament in their report what social benefits have arisen from the massive blow-out in executive salaries in this country. I challenge Allan Fels to lay out a proper basis for a more visible and accountable process for executive salaries in this country. I am not arguing for caps; I am arguing for transparency. If it is good enough for workers to be transparent in terms of how they achieve their goals on the shopfloor, it is good enough for the big end of town. If it is good enough for workers to improve productivity, then it is good enough for the big end of town to be measured against increases in productivity. I am glad the government has taken that first step because I feel very sorry for all the workers who, due to the global financial crisis, are under immense stress and strain, and yet the big end of town are still plundering the profits, plundering the shareholder wealth of companies. This has to be stopped and I think that there is a proper, strong and effective role for the Productivity Commission and the parliament in that process.