..socio-economic status of the students. Private schools send all their problems to State schools where teachers cope with extraordinary generosity of spirit. Most of the time.
But this, perhaps not too tangentially, brings to my attention the absurd amounts that CEOs of large corporations are paid, which is both disproportionate and absurd in relation to the average – or even the median - salary. Having met a few heads of business over time I have, with the possible exception of the current CEO of Telstra, not believed one of them was remotely deserving of the money and perks handed out. The previous Mexican carpet bagger who ran Telstra , Sol Trujillo and his band of overpaid devious cohorts, nearly ran the company into the ground, so unaware of local culture, business and how the Australian government worked. Yet Mr Trujillo fled the country with a golden parachute of around $30 million.
But then again they were chosen by the esteemed Mr Donald McGauchie, once head of the National Farmers Federation and confidant of John Howard, a person whose contribution to industrial relations was cheer on the sacking an entire dock workforce for being members of a union. He planned to replace the workers with serving and former soldiers, trained in advance in Dubai. The photographs of the balaclava wearing figures with guard dogs were the industrial relations winners of the year.
Did I say that Trujilo’s departure was coincident with McGauchie’s removal from the board?
The total packages of chief executives of the top 300 listed companies rose 4 per cent in 2011 to an average $2.33 million. However, if we take the past 10 years into account, packages grew twice as fast as earnings and more than three times as fast as inflation. I would say that, without exception executive salaries have been immune from the effects of the GFC when bonuses and benefits are taken into account. And on any analysis salary packages are structured so that it takes superlative ineptitude or a rare moment of honesty in the face of falling revenue for an executive to actually do badly, no matter what happens to ‘his’ company.
The odd thing is that outstanding performers are motivated by a challenge and far less by money, and that the composition of a CEOs pay package has nothing to do with his future performance. Even stranger, a CEO may not make all that much of a difference in whether the company is a success or a failure. Unless, like Steve Jobs, they founded the company
By the way, $2.33 million is more than 33 times the average wage – not yet at the 200 times level that the United States has achieved. However, for statisticians amongst you, the median Australian income is less than half the average American income, so you can happily double the above ratio.
Is the CEO of Transurban worth over $8 million per year for an operation which is essentially clipping the toll tickets on an organisation that cannot even fulfil its basic function which is to keep the roads and tunnels running?
As by Myriam Robin of the journal LeadingCompany stated recently …
“Executive pay is complex, and the picture in Australia is nuanced. For one thing, while most Australian executives had take-home pay in line with in the annual report, several executives earned far more than is clear by looking at their reported pay packets, once things such as equity (typically awarded in the form of options) are taken into account. Options are the ability to purchase shares at a certain price at a later date, and are awarded several years before they vest, meaning it can be difficult to assess their value at the time they are granted.’
Tony Poli of Aquila Resources was singled out in the study for taking home $169.4 million despite his official stated pay amounting to $572,000. His return was boosted by several waves of options he was issued from 2005. The most lucrative was 5 million shares, then valued at $2.15 million, awarded in 2005. As Aquila’s share price soared, they vested in 2007 for a hundred times that amount ($238 million).
Nice work if you can get it.
Why is this state of affairs in existence you may ask? Well the obvious answer happens to be the correct one. It is the result of a self-selecting group of interlinked people that have created a delicious set of circumstances that create risk-free rewards for a generally average managerial class who have greed and status as objectives.
CEO's pay generally is set by a compensation/remuneration committee, usually comprised of other chief executives, Board Members or selected representatives of accounting and consulting firms who depend on their selection for other business with the company on the whims of CEOs. Their existence is predicated upon maintaining and enhancing the current scenario. The gene pool of Australian business is small but the intelligence pool is even smaller. Fortunately they are all friends.
There is some hope for shareholders who are angered by this situation: for the past two years, they’ve had a compulsory formal mechanism with which to register their displeasure. The two-strike rule, effective from July 2011, makes shareholders vote on a company’s remuneration report, with two strikes of 25% of more shareholders in dissent for two consecutive years triggering an automatic spill motion on the company’s entire board.
However, given the proxy votes available to boards, getting the 25% is sometimes a challenge. But given the current inequitable situation it is incumbent to moan as loudly as possible. After all they are spending our money.