Forget Minimum Wage, What About A Maximum Wage?
"Does anyone think these CEOs work 100 times harder than the average worker? Because that's how they're being paid."
More than two million Australians earn the minimum wage, which was just raised to $18.93 an hour, or about $37,000 a year.
Half of Australian workers earn less than $55,000 a year. But where’s our national debate on the maximum wage?
The Business Council of Australia (BCA) likes to talk about the minimum wage, mostly about how the sky will fall in if we don’t slash it. Every time the Fair Work Commission considers increasing or cutting the minimum wage we have a massive national debate involving business, unions, workers, the parliament and the public. But for too long we’ve neglected those forgotten people at the top and it’s time we discussed setting a maximum wage with the same enthusiasm business brings to slashing penalty rates and attacking the minimum wage.
Back in 1993, CEOs earned about 15 times average earnings. By 2007 the gap between the average wage and executives had exploded out to 250 times. Australia’s highest reported CEO salary peaked pre-GFC at $33.5 million, declined to $11.8 million in 2011 before bouncing back to $21.6 million in 2017.
While average earnings have not even doubled since 2000, at two of Australia’s big four banks, NAB and Commonwealth Bank, CEO pay has more than tripled.
In 2017, the CEOs of the NAB and CBA earned, respectively, 108 and 93 times average weekly earnings. Does anyone think these CEOs work 100 times harder than the average worker? Are they 100 times more productive? Do they deliver 100 times the customer service?
If you’re on minimum wage, or rely on penalty rates, cutting your pay is supposed to incentivise you to work harder, or longer hours. In fact, the BCA has argued that high penalty rates are preventing people from entering the workforce. But for our highest income earners, the only way to incentivise them to perform to their best is to pay them millions of dollars, plus bonuses. Otherwise, we’ll lose the best people overseas.
Apparently the poor are incentivised by cutting their wages but the rich are incentivised by increasing their wages. How convenient.
The CEOs of Australia’s big four banks are among the highest paid CEOs in Australia. So theoretically they should be the best performing CEOs in Australia. Instead, the Banking Royal Commission shows they have presided over alleged fraud, money laundering, targeting vulnerable people for unscrupulous high-interest loans and insurance products and of course, who could forget that great free market invention—fee-for-no-service (i.e. you can’t escape bank fees even when you’re dead). We didn’t pay peanuts, but we still got monkey business.
In any case it’s safe to say the banks aren’t sending us their best people.
A recent survey by the Australia Institute shows 80 percent of people think CEOs are paid too much, only two percent thought CEOs were paid too little.
And Australians support measures to rein in CEO pay. Three quarters of us would back an outright limit on CEO pay, just as we limit the minimum wage and penalty rates.
‘But we can’t do that’ I hear you say, that would be ridiculous wouldn’t it? Australia will be uncompetitive, we’ll be left with just the bargain basement CEOs!
There are other options. We could introduce a new top marginal tax rate for very high income earners -- 79 percent of Australians supported that.
We could leave companies free to pay their CEOs whatever they like, but deny tax deductions for executive pay above a reasonable amount. Almost 80 percent of Australians support that.
What’s a reasonable amount? We asked that too. Three quarters of Australians think $1.8 million or lower sounds reasonable. That’s about 33 times the median wage and about 48 times the minimum wage.
So far the penalty rate cuts have failed to create the promised jobs boom in retail and hospitality. Apparently we need even deeper cuts before these jobs materialise. So let’s apply the same logic to the big end of town and set a CEO pay cap. If it doesn’t work, we’ll know we need even deeper cuts to CEO pay before we see really see results.
Seems only fair.
Ebony Bennett is Deputy Director of The Australia Institute.