Cap and Save (the Economy)

To rescue the global economy from reckless power suits, we just may need a 'maximum wage.' So say Australia’s top labor leaders and a fairly daring cohort of MPs in the UK.

By Sam Pizzigati

You don’t need to be particularly bold, not these days, to blame excessive executive compensation for a good chunk of what ails the world economy. Over recent months, a wide array of public figures — from government and business to academia and the press — have been doing [1] just that.

The latest observer to underscore the dangers excessive executive rewards inevitably create: Jeff Lawrence, a top-ranking leader in Australia’s national labor federation. 

“Outrageous executive salaries and bonuses,” Lawrence noted last week at the Australian Council of Trade Unions triennial congress, have “encouraged a culture of excessive risk-taking and short-term thinking that is widely acknowledged as a major cause of the global financial crisis.”

“Year after year of virtually unlimited increases in CEO pay packets,” Lawrence would go on to add [2], have left executive remuneration “out of all proportion with the work performed.”

Nothing exceptionally bold in that observation. But you do have to be somewhat daring to propose what Lawrence — on behalf of Australia’s labor movement — proceeded to say next. The union leader called on Australian federal officials to cap corporate executive pay at ten times an enterprise’s average worker wage.

What about executive bonuses? The Australian labor movement wants “performance” incentives strictly regulated — and limited to situations where companies out-perform their peers over a full five-year span.

How boldly, comparatively speaking, does this Australian pay cap push stack up against executive compensation reform efforts in other nations? In the United States, lawmakers are still struggling to get shareholders the right to take mere advisory votes on executive pay.

In 2007, chief executive compensation at America’s top 500 companies averaged 344 times average worker take-home. In Australia, the latest stats put the CEO-average worker pay gap at 63 times, up from just 18 times in 1990. That’s enough to outrage Down Under labor leaders.

“Corporate Australia has lost its moral compass,” Australian Council of Trade Unions president Sharan Burrow charged at last week’s labor congress.

“Outrageous multi-million bonuses,” she pointed out [3] in Brisbane, “are still being pocketed by the engineers who created a financial house of cards that toppled over and is now destroying the livelihoods and the homes of millions.”

The ACTU ten-times cap proposal figures to get a hearing. Australian Prime Minister Kevin Rudd, this past March, asked [4] the national blue-ribbon Productivity Commission to weigh in on the overall executive pay question. He directed the panel to “examine all workable options” for ensuring that executive pay packages “do not reward excessive risk taking or promote corporate greed.”

The commission will likely report out recommendations this December.

Meanwhile, in Britain, nine members of Parliament have just introduced [5] legislation to place “a cap on the maximum wage that can be paid to any person in any one year.”

Millions of low-income workers, the measure’s lead sponsor, MP Paddy Tipping, told [6] the House of Commons Wednesday, have benefited from the British minimum wage.

“We need to complete the policy circle,” Tipping urged, “and seriously consider the introduction of a maximum wage.”

A maximum wage set at ten times the minimum, the former social worker observed, “would give a maximum wage of £120,000,” the equivalent of close to $200,000.

Whatever the specific ratio, Tipping noted, the effect would be profound.

[7]“It is clear,” he explained [6], “that one of the consequences of a maximum wage policy would be that if the top bosses and chief executives wanted to increase their pay, they would have to increase the pay of everyone who worked in the company.”

The MPs behind the Tipping proposal are hoping the bill’s introduction will stimulate a broader national debate.

“We need to be clear that voters abhor greed and injustice,” Tipping summed up last week in his House of Commons remarks. “There is a crisis in the economic system, and a matching crisis in our political system, and reform is necessary and urgent.”

Sam Pizzigati edits Too Much [8], the online weekly on excess and inequality.