Mike Symon (Deakin, Australian Labor Party) Share this | Link to this | Hansard source

My grievance today relates to the astronomical levels of remuneration that are now being paid by some of Australia’s leading public companies to their chief executive officers and other senior executives. On 9 September this year I spoke on the Corporations Amendment (Improving Accountability on Terminations Payments) Bill 2009 and at the time I noted there was a great deal of public concern not only with executive termination payments but also with salary and total remuneration packages as well. In fact, for the past few years there has been a regular outcry from shareholder groups, journalists, unions, workers and mum and dad investors about the extraordinary payments made to senior company executives.

It seems that executive salaries are growing at an exponential rate and that poor company performance has little relation to bonuses and termination payments. Interestingly, recent research from a range of developed nations conducted amongst company directors indicates that many directors also feel that CEO remuneration is obscene and out of control—an interesting choice of words. Since the Corporations Amendment (Improving Accountability on Terminations Payments) Bill 2009 was introduced into the House we have seen the release of the Productivity Commission’s draft report into executive remuneration in Australia. This report contains some very alarming figures highlighting the growth of chief executive officer remuneration in Australia between 1993 and 2007. It shows that CEO remuneration at Australia’s 50 to 100 largest companies grew by up to 300 per cent between 1993 and 2007 and that remuneration for CEOs of Australia’s top 20 companies averaged almost $10 million for the year 2007-08.

If you think about that figure of $10 million: that is more than 150 times the average wage. It would take a working life of 150 years to get one year’s salary. The average wage at the moment, MTAWE, is $1,280 per week. CEOs of the next 20 biggest companies were paid around $5 million per annum. That is only about 75 times the average wage!

Much of the total sum of these payments is in the form of short-term incentives or better known to the rest of us as bonuses. So whilst it might not seem, in some cases, that the actual base salary has gone up all that much, you do have to look at the total package. When you look at the total package you can see the growth that has occurred over the years—continuously. When it comes to bonuses, there is plenty of evidence that they are not linked to company profitability as they continue to rise year after year as company fortunes rise and fall. Look at Telstra whose former CEO, Sol Trujillo, is a prime example. He was paid by Telstra, a so-called golden handshake of $3 million on his termination. Yet Telstra share prices did not perform brilliantly when Sol Trujillo was there. If my memory serves me correctly, they actually dropped to about two dollars per share during his tenure. It is certainly hard to find a member of my community who was happy with the service Telstra provided when Mr Trujillo ran the show. He cut services, he cut contacts and he cut the range of people you could talk to about getting problems fixed. Customers lost out while senior executives raked the money in.

For many companies executive remuneration has increased despite poor performance and it is no wonder that the community regards such payments as greedy and outrageous. Professor David Peats supports this point in his submission to the Senate inquiry into the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 noting a range of research over the past few years that shows increased pay despite lower levels of performance. So often we hear the excuse that these executive salaries must be paid as we are competing in a global market. The payment of incentive pay without properly defined targets, which appears to have been imported from the US, is one practice that should be targeted for much greater scrutiny. It is not only shareholders who are footing this bill of the greedy few, it is also the rest of us, the consumers of Australia, who pay higher costs for goods and services to line the pockets of a few select corporate fat cats.

The vast majority of Australians are shareholders in ASX listed companies in two major ways. The ASX has reported that 6.7 million Australians—41 per cent of the adult population—own shares either directly or through unlisted managed funds. When that figure is considered with the 11.6 million Australians over the age of 15 who have superannuation coverage then the size of the interest in locally listed company performance and remuneration practices can be understood. Superannuation funds often invest in shares, making every person who has a superannuation account a shareholder. Every oversized salary or remuneration package paid by companies at the rates I have already described is ultimately a drain on shareholder and superannuation returns. It is ordinary people’s futures that big company executives are playing with.

But the question that bothers me even more than the current level of CEO remuneration packages is: what happens in the future? At what stage does this exponential growth in CEO and executive salaries stop? If 150 times the average weekly wage is regarded as fair then why not 1,000 times? Why not even more? Until recently, I, along with many other people, regarded Australia as a fair and egalitarian society. But with payments like that to executives, I think that view is rapidly receding as those at the top of the tree continue to pull further and further away from the average. And while executive salaries accelerate, those very same executives argue that the working people who produce the goods and provide the white- and blue-collar services should consistently receive lower rises, if any, year after year. It must be galling for low-income earners, some of whom obviously work in companies run by these senior executives, to hear these corporations argue that their wages should be frozen. It would also be particularly disheartening for shareholders who are suffering from reduced dividends and share values from the current global financial crisis.

As we know, there is no direct brake on executive remuneration. Remuneration committees, formed by companies, recommend payment amounts, but it falls to shareholders to have a say, with a non-binding vote, on a company’s remuneration report at the annual general meeting. It is worth noting that on 12 October the Sydney Morning Herald described 2008 as ‘a watershed year for protest votes on remuneration reports at annual general meetings’. And even when there is a substantial shareholder revolt against executive salaries, such as the 43 per cent of shareholders who voted against the remuneration report at Qantas’s recent annual general meeting, there are always vast numbers of proxy votes from other institutional shareholders to protect the status quo. Qantas is not the only example. At Downer EDI’s AGM earlier this month, 59 per cent of shareholders voted against the remuneration report. Shareholders rebuked this company for deliberately lowering its performance standards under its plans for executive bonuses. Again, this was noted in a recent Sydney Morning Herald report.

I welcome the Productivity Commission’s draft report into executive remuneration in Australia. I hope that both this report and the final report will lead to a real and public debate about what can be done to curb such massive payments to corporate executives and help our country return to a fairer way of rewarding work for each and every worker in Australia.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

There being no further grievances, the debate is adjourned. The resumption of the debate will be made an order of the day for the next sitting.