Executive's Salary: Get Over it

An article in the Sydney Morning Herald today says that "You could work every day of your life, for two lifetimes, and still earn less than what Australia's top executives are paid in one year." People seem to be outraged that CEOs of big time companies get, on average, 200 times the average salary of an Australian worker.

The outrage is understandable. It's a lot of money of course. Some executives would be paid over $10 million. What is surprising though, is the number of people that have come out and said that we should cap these salaries. It should be noted that the top to earners on this list receievd bonuses and salary increases which coincide with increased shareholder returns. People like John Minto, however, have come up with this ridiculous idea that executives should be stopped from earning money. Minto suggests that the government imposes some sort of price ceiling which would stop all salaries going over a certain amount. This idea isn't short of stupid and idiotic. Limiting executive pay would only cause big business to shift overseas and take the jobs that come with them.

One of the sectors that can have this sort of a pay cap is the fianancial sector. At the G20 meeting the leaders decided that the salaries of workers (executives I guess) in the fianancial sector will be linked to performance. This si a good idea for the fianancial sector as it stops CEOs from receiving large salaries even as the instituion collapses. This works for the financial sector but it wouldn't work for private companies in other sectors. This is because executives are not likely to get their exorbatant salary if the company is going bankrupt so linking the salary to performance achieves very little. Say Telecom's profit is down one year because of the billions they are spending on installing new infrastructure. The CEO is increasing investment, this is a good thing for the economy, but it looks like the business is losing money so the CEO would have to take a pay cut. You don't want to discourage investment.

The reason that CEOs get paid so much is because there are few people that can do what they do. As remuneration consultant, Peter McAuley put it "It is an issue of supply and demand.". The government should not interfere with the private sector unless it has a direct effect on the country. How companies run their business is up to them and the shareholders and the board can decide how much to pay their executives.

Instead of trying to bring their salaries down to our level we should be aspiring to earn as much as them and be as successful as them. No CEO go their job for being an idiot.