Symptomatic of the underlying tendency in capitalist society toward
ever greater levels of social inequality is the phenomenal growth in the remuneration
paid to the chief executive officers (CEOs) of leading corporations.
In every major country, corporate chiefs unashamedly enrich themselves
while overseeing the wholesale destruction of jobs, wages and working conditions
of ordinary working people, and demanding governments axe essential social programs
to fund huge tax cuts for the wealthy few.
That Australia is no exception to the rule can be seen in the results of research
by Dr John Shields of the University of Sydney economics department published
in the Journal of Australian Political Economy. His paper reviews the movement
in the CEO salaries paid by 51 corporations that are members of the Business
Council of Australia (BCA).
Shields points out that the BCA, comprised of the country’s 100 largest
corporations, “aggressively champions the cause of greater labour market
‘flexibility’ and ‘labour cost competitiveness’...”
In fact, in many cases the large pay packets commanded by the CEOs are determined
by their ability to drive down the conditions of employees, so as to enhance
Shields’ research shows that the average annual CEO pay climbed by 564
percent over 15 years, rising from $514,433 in 1989-90 to $3.42 million in 2004-05.
The average compounded yearly rise was 13.5 percent, or five times the inflation
rate of 2.8 percent.
Over the same period, the average wage of full-time adult workers rose just
85 percent, or by 4.2 percent a year, from $29,198 to $54,080. In 1989-90 the
total salary of a CEO, including base pay and bonuses, was 18 times that of
an average worker; today it is 63 times higher.
Translated into weekly earnings, an average CEO is paid $65,000 a week, or
around $11,000 more than the annual wage of an average worker or nearly $40,000
more than the annual earnings of the 1.6 million basic wage workers who make
up 20 percent of the Australian workforce. These workers struggle to make ends
meet on just $25,188 a year, or $484 a week.
While it takes the average worker around three to five years to pay off even
a modest car, two weeks’ earnings of a top CEO would purchase a luxury
Mercedes-Benz CLK2 at around $130,000. With just five weeks’ pay, a CEO
could buy outright the modest home that most people spend their entire working
lives paying off.
Shields emphasises that CEOs also “have access to disguised income”
worth many more millions of dollars. This includes generous sign-on bonuses,
special retirement benefits, retention and long service benefits, non-interest
company loans, zero-cost share rights and post-termination consultancy fees.
Share option plans, for example, give CEOs the right to buy shares at pre-determined
prices at a time of their choosing. They can exercise options when share prices
are at their peak and sell them to make a financial killing with no risk.
Unlike ordinary workers, CEOs also use a range of loopholes to avoid paying
tax, such as separate company trust and other so-called “minimising techniques”.
According to one recently quoted tax expert, senior executives “were unlikely
to pay the 47 percent top tax rate”. Nevertheless, the BCA is loudest
in demanding further tax “reform” to benefit the country’s
The obscene pay levels and outright hypocrisy of the corporate elite are fuelling
widespread disgust and anger. Companies therefore employ a host of public relations
experts and spin doctors to attempt to justify the extraordinary levels of executive
One argument is that high salaries are determined by the global market and
are necessary to attract the best executive talent. Amazingly, the same market
forces dictate that workers, no matter how skilled, talented or hardworking,
are grossly overpaid and must have their wages cut.
High executive salaries, however, are no guarantee of talent. In many cases,
enormous salaries were paid to CEOs and senior executives responsible for plunging
leading corporations into deep financial crisis and even bankruptcy.
Insurer HIH collapsed in March 2001, leaving behind more than $A5 billion in
losses and two billion worthless insurance policies. Even with the company teetering
on the edge, company executives continued to draw performance bonuses. CEO Ray
Williams jumped ship just four months before the company announced an $800 million
Australia’s fourth largest telecommunications company One.Tel collapsed
in May 2001, owing more than $600 million to some 3,000 creditors. Prominent
on the company’s board were James Packer and Lachlan Murdoch, the sons
of media magnates Kerry Packer and Rupert Murdoch. The company’s leading
directors Jodee Rich and Brad Keeling awarded themselves an extra $14 million
in performance bonuses just before the company went under.
When National Australia Bank (NAB) CEO Frank Cicutto resigned in 2003 after
overseeing the loss of hundreds of millions of dollars in foreign currency trading,
he was drawing an annual salary of $7.7 million. He left behind a financial
crisis that resulted in the bank axing thousands of jobs. Nevertheless, Cicutto
received a $14 million termination payout.
Shields examines another oft-cited reason for exorbitant CEO pay, that “the
market for executive labour differs from that for ‘average workers’
in that supply of executive skills is extremely small”. Pointing to some
of the destructive practices rampant in the corporate world he says that potential
executive talent was devastated by “the dismantling of internal promotions
structures and the repeated rounds of middle-management delayering in the 1990s...”
Shields adds: “Incoming CEOs also have a well-deserved reputation for
eliminating promising rivals... the mantra of scarce executive talent can be
viewed as being essentially a self-serving myth of incumbency.”
The BCA’s communications director Mark Triffitt attempted to counter
Shields’ research by claiming that it was “unfair” to draw
a comparison between top executive wages and those of workers because: “These
people who occupy those positions (CEOs) are responsible for generating the
biggest share of wealth in Australia.”
In reality, actual wealth is not created by a handful of over-paid CEOs. Nor
is it the outcome of corporate raiding, takeovers, acquisitions, mergers, asset
stripping and speculation. If anything, such activities result in vital productive
forces—including the most productive of all, human labour—being
squandered or destroyed. Wealth creation is the outcome of the labour of the
many millions of workers in manufacturing, construction, mining, energy generation
and a host of services and other industries that produce all the goods and services
necessary for human society.
Shields notes that it is even difficult to justify CEO salaries on the grounds
that executives have increased returns on shareholder investment. His research
shows that since 1999, BCA CEO’s remunerations have doubled whereas shareholder
returns increased by just under 60 percent. Shields concludes: “In short,
in recent years, pay increases that are supposedly contingent on performance,
have on average, generated earnings disproportionate to underlying improvements
in shareholder value.”
Clearly, capitalist society is not only increasingly unequal but also
economically diseased. Ever increasing amounts in “cost savings”
ripped out of the workforce are being used to bolster the earnings of fabulously
wealthy company executives while companies themselves stagnate or fail.