SMH:
Executive pay: the high cost of market failure
The Australian Council of Super Investors (ACSI), the body which represents industry super funds, marked its ten-year anniversary last month with a ten-year study on executive pay.
It found the decade to 2010 saw median CEO fixed pay in the Top 100 ASX Australian companies rise 131 per cent and the median bonus increase 190 per cent.
This far outstrips the 31 per cent increase in the S&P/ASX100 over the 10 years.
“The findings … also indicate that while CEO cash pay – the value of pay disclosed excluding share-based payments – has fallen from the peak of 2008, it remains much higher than any year before 2007,” said the ACSI report. “This is despite the S&P/ASX100 declining 30 per cent over the three years to June 30, 2010.
“Median cash pay for top 100 CEOs in 2010 was $2.786 million, down 2.4 per cent from 2009 and 4.1 per cent from the record peak of $2.904 million in 2008. Despite this decline, median cash pay for a CEO of a top 100 company in 2010 was 12 per cent higher than any year prior to 2007.”
So, we have workers’ pay rising roughly 3 per cent a year, and the average super fund return over the decade little more than 3 per cent as well. Nonetheless, executive salaries put on double digit returns.
How can this possibly be regarded as a functioning market?
The market is broken. Supply and demand are not intersecting efficiently. On the supply side, there are plenty of contenders for CEO roles. Scarcity is a bogus argument – especially as there is no credible evidence that paying more money achieves a better result. The argument of higher pay for higher performance is based more on lobby group chimera than empirical evidence.