CEO remuneration "a response to market demands"??
Greig Gailey, president of the Business Council of Australia this morning on the ABC’s AM:
PETER RYAN: What about executives in the corporate world, especially those on multi-million dollar packages at the big end of town that you represent. Do they also need to show restraint and consider taking a pay freeze?
GREIG GAILEY: Well that’s a separate issue and I’m not going to take a position on that. But what we’re seeing there is, I guess, a response to market demands which is about shortages in the economy.
Is he seriously arguing that when the average CEO salary of a top 100 Australian company is four million dollars, that’s a simple case of supply and demand? No matter how good they are, I’m quite sure no CEO is worth anywhere near some of the ridiculous salaries they are paid. If this is the result of the market setting the prices, sounds like a case of market failure to me.
Mark wrote:
Well, he’s right that this is a separate issue, insofar as it doesn’t have a huge amount to do with inflation. Democrats in the US have been correctly pointing out that giving the extremely rich tax cuts doesn’t help the economy, because they don’t spend more money because they have more coming in - they spend however much they want and pocket the rest. This is a mark of how obscenely wealthy they are.
As I’ve been arguing, however, I don’t think that wage rises are causing inflation at the mo, but are merely a symptom of inflationary pressures on people that cause them to ask for more money. So there’s really not a case for wage freezes, at least not when one considers the case for various forms of price control.
liam wrote:
Hee hee.
I recall someone describing, on the subject of executive salaries, the “top quartile” effect. Since a) every Board wants to have the best executives, and since b) it follows that the quality of the executive him/herself is directly linked to how much pay they can demand, then c) every Board naturally must want to have an executive whose pay is in the top 25% (ie. “quartile”) of the executive pay range. It would go against their responsibility to their shareholders to have a CEO, CFO, etc. whose pay was in the lower three quartiles, and thus being by definition substandard, right?
Turn it into a feedback loop where executive salaries are reassessed periodically—say at the end of each financial year—and you’ve got the perfect recipe for infinitely increasing pay.
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