Andrew Leigh

E&OE TRANSCRIPT

RADIO INTERVIEW

3AW DRIVE WITH TOM ELLIOTT

TUESDAY, 2 OCTOBER 2018

SUBJECTS: CEO pay transparency, housing.

TOM ELLIOTT, HOST: As I mentioned just a few minutes ago, the Labor Party's got a number of plans if and when they were elected to be the next government of Australia - and by the way I think they will be elected the next government so you get used to the idea that Bill Shorten will be our next prime minister. One of these plans is to require listed companies with more than 250 employees to disclose the ratio of their chief executive’s pay to that of a median employee. So the median is the middle employee in the list of employees from the lowest paid and the highest paid. They want to have a ratio of that person's salary to that of the CEO. Now, I’m just not sure what question this going to answer. However, the man who came up with the idea joins us right now. He’s the federal Shadow Assistant Treasurer, Andrew Leigh. Good afternoon.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good afternoon, Tom. Great to be with you.

ELLIOTT: Well, thank you for joining us. Tell us, what is to be gained by calculating this ratio between the CEO's salary and that of the median employee's salary?

LEIGH: It gives you a sense firm-by-firm as to how that company is paying people. It gives you a sense as to whether the ratio of pay for people on the factory floor to the corner offer has gotten out of whack. This idea has a pretty long lineage. It goes back to people like Peter Drucker, the father of modern management theory, who says that in his view 20 to 1 was about what you needed in order to not have things get out of kilter. What we’ve announced does no more than to follow what United States and the United Kingdom have already put in place.

ELLIOTT: Ok, but I mean, you know - if you took a firm like Macquarie Bank, which is often called the millionaires factory, you’d probably find there was a fairly low ratio between what the CEO earns and what the median person earns because lots of people do earn a lot of money there. If you took, I don't know, Wesfarmers which owns Coles then there would be a higher ratio because the big bulk of the people working at Coles are relatively lowly paid you know supermarket workers versus the CEO. So again, what is to be gained by those comparisons?  Does that mean that Wesfarmers is a less morally justified company than say Macquarie Bank?

LEIGH: Look, every firm will have the opportunity to justify their remuneration ratio. I think it is important that firms think about how the pay structure works internally. We've got a good deal of evidence about firms’ level of pay compression, the idea that if that ratio does get too large then it can create challenges within the firm. If you look at the United States, you've got a company like Mattel where the CEO is paid 5000 times what the average worker gets and then you've got Salesforce, where the CEO is paid 30 times. And as you say both of those figures drive that gap. So the Salesforce CEO is paid less than the Mattel CEO, but the median worker at Salesforce also earns more than the median worker at Mattel.

ELLIOTT: Ok. But again, you're sort of implying that if it's a lower ratio then somehow society will become a better place. Why do you believe that? I mean, what's to be gained by it?

LEIGH: Tom, we’ve got a real wage problem in Australia. Let's be honest. Since 2012, workers basically have not gotten a real pay rise. There's one exception to that and that’s CEOs, who saw a 9 per cent pay rise last year. So we've got a huge amount of money flowing through to shareholders and to CEOs, but not flowing through to average workers. That's a direct economic problem because it's hurting household consumption, a problem that's been targeted by the Reserve Bank Governor. Australia needs a pay rise. It’s not just me saying that. That is central bankers saying that. And one way of making sure we get wages going again is to make sure that firms are reporting on how they are going for the median worker as well as the boss.

ELLIOTT: Ok, so, so you’d prefer to see households spend more?

LEIGH: Absolutely. We need to ensure households get more in order to spend more-

ELLIOTT: Ok, so can I ask you this. I mean, another one of your policies, which is to reduce negative gearing substantially, I think is going to put more weight on the property sector. Now if you lower the value of Australians homes even more, you will see them consume less rather than more. It's a thing called the wealth effect, which I'm sure you're aware of.

LEIGH: Tom, we're not putting in place this policy in order to tweak the property cycle. This is a long term reform-

ELLIOTT: No, but it will cut the value of Australians homes.

LEIGH: No, that’s not what the experts say-

ELLIOTT: Oh, come on. If you take, if you take the demand from negative gearing out of the market, house prices have already fallen over the past year. They will fall further. I mean that's just, you know, you've said in the past you want to make houses more affordable for first time buyers and that's fine. But all I'm saying is that the biggest store of wealth that most people have is the value of their home. If you cut the value of their home, they will spend less rather than spend more.

LEIGH: Tom, if you take an investor of the market and put a first home buyer in the market, you've got the same amount of demand. Right now on Saturdays around the country you are seeing first home buyers beaten out by investors. Our home ownership rate now is the lowest it's been six decades and puts us in the bottom quartile of the OECD for home ownership. It used to be that owning a home was the great Australian dream, but under the Liberals owning ten homes is the great Australian dream and bugger the person that can’t make it into the market in the first place.

ELLIOTT: OK, so how much would you like to see house prices go down by?

LEIGH: This is not a policy to drop house prices. This is a policy to get first home owners back into the action. Anyone who has got kids in their 20s and their 30s will know what’s happened to housing access for that cohort. It just can’t go on-

ELLIOTT: Ok, so-

LEIGH: We cannot be the country where-

ELLIOTT: I'm sorry, Mr Leigh, but you're being disingenuous. To say that if you take away negative gearing, the equal amount of demand will come from first homebuyers - it simply can't be true. Because if they have the equal purchasing power there won't be much competition between them, but you're trying to remove one, but that doesn't mean that the purchasing power goes up.

LEIGH: But the other one moves from being a renter to being a home buyer. This is simply about-

ELLIOTT: Only if the price of houses goes down.

LEIGH: This is simply about restoring the balance that we've had historically in the past. The Liberals used to be the party of home ownership, the party of Menzies uses to believe in home ownership for all. And now they’re defending an unusual Australian tax loophole, which has seen a huge amount of money flow to the most affluent people in Australia and it’s made it very difficult for young people to get in the housing market. We have to change that for the future of the nation.

ELLIOTT: Ok, just coming back to the issue of wages. I mean, for most companies most of their wages, particularly if you work in a supermarket or on a shop floor, they’re set by awards. So would an easier way to do all this to increase wages just go to the Fair Work Commission and say ‘increase the awards’?

LEIGH: You're absolutely right that award reliance has increased. Now, many more people are sitting on those safety net wages because enterprise bargaining simply hasn’t delivered. Brendan O’Connor, Bill Shorten and Chris Bowen have talked about a range of ways of getting wages going again. We’ll restore Sunday penalty rates, ensure that labour hire is being used to address short term shortages and not simply to undercut the wages of workers -- and there'll be a range of other announcements coming out in the wages space. But a little bit more pay transparency will also I think be good for boosting wages in Australia. We've got to get wages going again to get household consumption going and also to deal with this massive debt load, which is now at historic highs. Household debt is now twice Australia’s household income and that’s not good for the nation either.

ELLIOTT: Final question. I'm willing to bet that the ratio of wages between low paid people and federal politicians has probably been more in the favour of federal politicians. Do you think you should be paid less?

LEIGH: I support someone else setting my wage. I don’t think politicians should be meddling in our own pay packets. The decision to give that to an independent tribunal was a good one.

ELLIOTT: Andrew Leigh, thank you for your time.

LEIGH: Thank you, Tom.

ENDS

Authorised by Noah Carroll, ALP, Canberra.