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Top executives take 22 per cent salary boost

KERRY O'BRIEN: The good times are certainly rolling in corporate Australia if you happen to be a chief executive.

The CEOs of our top 100 companies have enjoyed an average 22 per cent increase in their salary packages in the past 12 months after a surge of 15 per cent the previous year.

No doubt our corporate leaders would point to the buoyant state of the economy to justify the increase but that would be of some little solace to shareholders of nearly a quarter of those 100 companies whose profits were actually down from 1998.

And the ACTU will need no urging to demand a share of the good times for workers.

Business and economics editor Alan Kohler reports.

JENNIE GEORGE, ACTU PRESIDENT: Now you tell me, where's this affair going?

Where's the justice in this?

GERRY HARVEY, CHAIRMAN HARVEY NORMAN: My belief is you could replace nine out of ten chief operating officers in Australia with people that are getting less than a quarter of what they get and you would get a better result in nine cases out of ten.

ALAN KOHLER: These are certainly boom times for chief executives.

Three years ago their average pay rise was 9 per cent. The year before last it was 15 per cent.

Now we learn from a survey by The Australian Financial Review that last year it was a massive 22 per cent.

GERRY HARVEY: I think the boards of these public companies should look at this.

It's a problem and they should examine it and talk to their chief operating officer.

ALAN KOHLER: The chief executive pay rises in the latest year seem to bear little relationship to profit or share price or anything else for that matter.

What many observers are saying is it's one thing for chief executives to share in a big rise in shareholder wealth, but it's another entirely for them to get millions of dollars no matter what.

JENNIE GEORGE: In fact, some of the companies have done worse in the last 12 months while remunerating people at the top with very hefty wage increases.

GERRY HARVEY: To most companies the executive, the chief operating officer, gets this $2 million, $3 million, $4 million a year regardless of whatever.

There are many cases we know of where the profits have dropped and they've given themselves a rise as well.

ALAN KOHLER: Part of the answer according to those who help set executive salaries is that sometimes it's more an art than a science and it's always difficult to get it exactly right.

IAN CRICHTON, REMUNERATION PLANNING CORPORATION: All boards struggle to some extent in measuring the rewards to be awarded to their CEOs and they try and measure the dollar amounts paid as base salary and benefits against peer groups using survey data that's provided by remuneration advisers.

ALAN KOHLER: Well, Gerry Harvey's got some advice for directors.

GERRY HARVEY: I could prove to them they could get rid of their chief executive, replace him with someone on a quarter of the pay and they would actually get a better result.

IAN CRICHTON: One of the things is that clearly boards are driven by market forces.

So to obtain key talent out of a relatively small pool of talent, they have to provide what might be seen as the flavour of the month in terms of reward.

Clearly during a bull market, and some of those rewards become considerable, but when put in the context of the overall market capitalisations of the companies, may not be seen as quite as large.

ALAN KOHLER: The survey won't do much to help the Reserve Bank's mood either.

The board meets tomorrow to decide whether or not to put up interest rates and although the 22 per cent increase for chief executives won't on its own affect inflation, it will make the unions more determined to get a pay rise for everybody.

JENNIE GEORGE: Why is it on the one hand, workers are constantly told and breached the virtues of restraint in wage claims, and yet those principles don't apply for politicians, for all the fat cats or for the top executives in this country?

I don't think we can go on like this.

ALAN KOHLER: With today's trade figures showing a deficit of nearly $2 billion for September added to the news about chief executive salaries, a rise in interest rates this week of perhaps 0.5 per cent is a better bet than any of the horses running in tomorrow's Melbourne Cup.

Escalating salaries for corporate bosses looks like bad news for everyone, except those CEOs, of course.

It's bad news for the Government, trying to keep a lid on things.

JENNIE GEORGE: I find it amazing the Government can tolerate a 22 per cent wage increase in one year for those at the top end of town.

A couple of weeks ago, we were looking at politicians giving themselves a 19 per cent wage increase, $300 more a week. Yet I'm struggling to convince the Government of the justice of raising the minimum wage from a very modest $385 a week.

ALAN KOHLER: The Government does not set wages anymore, although it does have a big influence at the Industrial Commissions National Wage Case.

After deregulation of the wages system over the past few years, the bodies that effectively set the salaries of virtually everybody are company boards, and they're not really bound by any rules at all.

IAN CRICHTON: What's reasonable will depend on what the business objectives are.

In a sense, the remuneration that is being paid to the CEO is just answering what the business strategy set down by the board is.

So it will be relevant and different in every circumstance.

ALAN KOHLER: But company directors are part of the system, too.

GERRY HARVEY: I think a lot of them get overpaid.

I know board people, public company board directors that get $100,000 a year and they probably work half a day a week as a maximum, probably half a day a month in a lot of cases.

They're overpaid too.

ALAN KOHLER: Gerry Harvey's a billionaire. Perhaps he can afford to moralise about other people's wages.

But there is a growing concern around corporate boardrooms that executive salaries have a habit of going up and staying up no matter how the company performs. So watch this space for changes to the way top executives' salaries are adjusted.

Although perhaps you shouldn't hold your breath.



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