A great article
They’ve surfaced everywhere, in all walks of life …
HOWEVER this Analysis likely will attract some flack for its honest analysis … we can’t have the truth out there unless it’s an acceptable interpretation by those who consider themselves rightly in charge …
See the piece within this article about Australia being the ‘place of choice for laundering money’.
The democracy movement is invading corporate Australia as unrest over exorbitant executive pay grows
By business editor Ian Verrender
2 DECEMBER 2019
They’ve surfaced everywhere, in all walks of life, across the globe.
From mass protests in Hong Kong and fiery demonstrations across Latin and South America to continued unrest in the Middle East and street marches across Europe, activists fomenting civil unrest have become the bane of parliamentarians desperate to maintain order.
They’ve also rattled financial markets, which are now concerned that the seething undercurrent of discontent about the unequal divvying up of wealth could disrupt the relentless northward march of global stock markets.
Last week, an array of American billionaires, including Ray Dalio and Howard Marks, were in town warning that cheap money and soaring asset prices were driving a wedge within and between rich and developing economies, fuelling discontent and protest.
It’s a trend that’s even extended to the boardrooms of Australian companies.
Last week, the chief executive and chairman of Westpac Banking Corporation, Brian Hartzer and Lindsay Maxsted, were shown the door following a monumental failure in management that, even if minimum penalties for all 23 million breaches were applied, would bankrupt the bank.
In the past two years, both the Commonwealth Bank and National Australia Bank have been forced by angry investors and community outrage to exact retribution at the most senior levels, dumping top executives and directors.
Even family-dominated corporations such as Harvey Norman have come under pressure from activist investors, prompting an angry outburst from founder and major shareholder Gerry Harvey at last week’s annual meeting.
For some, this is an alarming development with the potential to undermine the stability of our corporate sector. Others, however, call it out for what it is: democracy.
How your super is transforming business
Increasingly, the blowtorch has been applied by our big superannuation funds, these days dominated by not-for-profit industry funds.
Given trade union members sit alongside business leaders on the boards of these big investment houses, they’ve attracted the ire of the Federal Government and the Business Council in recent times.
But it’s hardly a unified opposition.
Sensing the shift in community attitudes, some business leaders in recent years have been vocal on a range of social issues from climate change and energy policy to marriage equality.
That is a trend that hasn’t sat at all well in Canberra, prompting this outburst from Assistant Minister to the Prime Minister Ben Morton in September:
“Too often big businesses have been on the front line on social issues but missing in action when arguing for policies which would grow jobs and the economy.”
Workers reunite as owners
The traditional divide between business and workers has blurred. Much of that can be put down to our superannuation system, which has begun to turn traditional notions of capitalism on its head.
For decades, the Business Council of Australia has painted itself as the face and voice of big business, arguing against employee wage rises and in favour of lower corporate taxes.
But the $3 trillion pot of superannuation — the bulk of it now run by industry funds — has made workers, by and large, the owners of capital.
Given senior executives and company directors merely are the hired help, you can mount an argument that the Business Council is little more than a trade union looking after the interests of its members.
In that regard, there’s no denying its incredible success.
While employee wages growth has languished for years, now at around the lowest level in history, executive salaries have soared.
The graph below shows the growth rates of chief executive salaries of two of our major banks, the Commonwealth Bank and National Australia Bank, compared to the growth in average weekly earnings.
Despite regular scandals and even major earnings upsets, such as the global financial crisis, the growth in senior executive pay packets has outpaced ordinary workers many times over.
In recent years, the cash salaries — the base pay — for chief executives have declined.
But total pay has been bolstered by huge lifts in short- and long-term bonuses that, in the vast bulk of cases, appear to be set in stone.
According to a recent study by the Australian Council of Superannuation Investors, which last week decided the fate of Westpac’s Brian Hartzer, chief executives of more than half the top 100 companies last year received more than 70 per cent of their maximum bonuses.
As ACSI head Louise Davidson noted in the forward, “at-risk pay may not be very risky at all”.
The two-strikes fear in the boardroom
Executive pay has become the enduring flashpoint for shareholder angst.
There are two reasons for that. The first is the obvious: executive salaries are exorbitant. And the second is that the only issue over which shareholders can express their displeasure at a company’s performance is to vote against executive pay.
Under the law, if more than 25 per cent of shareholders vote against the executive salary packages at a company’s annual general meeting two years running, they can spill the board, turf the directors out and replace them with a new set.
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It’s called the two-strikes rule and, not surprisingly, company directors aren’t at all happy with the arrangement and have begun agitating for the whole concept to be junked.
Those damned activists are using executive pay to complain about just about anything, they argue, and there’s no doubt it is having a major impact on mahogany row.
Westpac was facing the prospect of a second strike even before it was engulfed in crisis following revelations it helped fund child exploitation and sexual abuse in the Philippines and opened our banking system to widescale terrorism funding and money laundering.
Harvey Norman just received a second strike and Wesfarmers narrowly avoided a strike at its AGM.
Pressure on pay building
Every cycle, the story is the same. When company earnings are down, and bonus payments are likely to be crimped, executives argue for a bigger cash component.
For the past decade, however, plummeting interest rates have automatically plumped share prices.
Getting most of your pay in bonus shares has led to the windfall earnings bonanza at the upper end of the corporate tree.
Lower interest rates also have helped boost company profits. And as this graph from the Reserve Bank shows, the share that workers receive has been gradually trending lower since the 1970s.
*Higher profits, generated partly by low wages growth in recent years, have led to bigger executive bonuses.
While those higher profits ultimately will feed back into workers’ retirement savings via the superannuation system, it’s unlikely to be enough to quell the growing unrest over executive pay when so many households are struggling to make ends meet.
Savvy business leaders are sniffing the wind and taking notice. Those who don’t may find themselves out of a job.