TUESDAY, 2 OCTOBER 2018
SUBJECTS: CEO pay transparency, foreign currency exchange.
GARETH PARKER, HOST: The Assistant Shadow Treasurer is Andrew Leigh. He joins me on the line. Andrew, good morning.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Good morning Gareth. Great to be with you.
PARKER: I appreciate your time. Why should the government force companies to reveal what the boss earns?
LEIGH: We already have pay reported on the CEO and what we want to do is go one step further and to also say each firm needs to also say how much the typical worker earns. So then firms can be assessed in terms of the pay ratio – what’s the gap between the factory floor and the corner office? We know that experts like Peter Drucker have said that when that ratio gets too far out of whack then that can be bad for morale in the firm. He says a ratio of 20 to one is pretty reasonable.
PARKER: 20 to one?
LEIGH: 20 to 1 is what Peter Drucker reckons and he’s someone who is often credited as the father of modern management theory. But if you look at ASX 100 companies, the average ratio is 75 to one. In America, top CEOs are earning about 300 times what the typical worker earns. So it would take many lifetimes in the United States for a worker to earn what a CEO earns in just one year.
PARKER: So 20 to one - if the if the average worker at about $50,000, then the CEO’s pay should top out at about a million.
LEIGH: That'd be Peter Drucker's theory. Now, we’re not putting a cap on this. We’re not saying that firms have to adhere to some fixed rule. We’re just saying that when we have these conversations, all of us benefit. And I think many Australians were shocked earlier this year when we heard that the head of Domino's was earning $37 million at a time when Domino's itself was embroiled in a series of scandals around whether their franchisees had appropriately paid their workers. A couple of years before that we had the Commonwealth Bank engaged in the Austrac scandal at the same time as it was revealed that its CEO was being paid $12 million. So this is the ripe debate, Gareth, and I think it's important that we have as much information out there so Australians can engage in it.
PARKER: But you're talking about more than just big companies with high paying, with really high paid CEOs on the ASX. You're talking about all sorts of companies, are you? Aren’t you talking about companies with 250 employees or more?
LEIGH: Listed companies with more than 250 employees-
PARKER: Listed companies.
LEIGH: We're talking here about substantial public firms. As part of those listing requirements, they already have to report what their CEO gets. This would go a step further and say you've got to say which your typical employee gets. You see in the United States, where this is coming into implementation now thanks to rules that were passed under the Dodd-Frank Act, there's big differences across firms. In Mattel, it's about a ratio of almost 5000 to one. In Salesforce it's a ratio of about 30 to one. So there’s a big difference is across American firms in terms of the ratio of what they pay the typical worker and what they pay the boss.
PARKER: I wonder what you think of it folks. Should the boss be forced to declare what he or she earns and should there be I guess a comparison with what the rest of you earn? Would that information make you feel better about your pay situation or worse, I wonder? Andrew, is the idea that by publishing this information you shame corporate fat cats into taking less?
LEIGH: It's actually good for growth. There’s nothing in free market capitalism that says that overpaid CEOs are good for the economy. In fact, the opposite is true. So we're going to put this information out there to inform the public debate, to hopefully get a more egalitarian Australia but also to make sure that firms aren't making mistakes.
PARKER: Are you trying to shame the bosses into taking less or is it about trying to shame them into paying the workers more
LEIGH: It's about making sure that people are paid the right amount, paid what they’re worth. If a firm has a ratio of 5000 to one, they'll have to justify that to their workers, to their investors and to the broader community. We've seen, I think, through the banking royal commission - which the Liberals fought against for years - that the spotlight of transparency is informing the public debate. I don't think it's appropriate for this sort of information to be kept secret any longer. I think it's important that we have it out in the public domain and that we have those important debates around it.
PARKER: Would you like to know what the boss gets paid? Do you know what the boss gets paid or if you're a boss, let me know - how would you feel if you had to compare your salary to the average salary across your workers? The average salary is what you're talking about, is it Andrew Leigh?
LEIGH: Technically the median, Gareth. Like we do with house prices. You don't want this to be skewed by the very, very top. In effect, you line everyone up in the firm according to how they’re paid. In the middle you’ve got the median employee, and you compare that to the CEO.
PARKER: I want to hear from you about it. I don't know if, if I, if I got the you know the Australian Institute of Company Directors or the Chamber of Commerce or someone, they might say ‘look, you know, this is private enterprise, this has got nothing to do with government, go away, leave us alone, let us do what we want, it's up to us to explain to our shareholders not to the government’.
LEIGH: It's interesting you say that. You have the Director General of the British Institute of Directors who said companies will have to prepare themselves to explain how pay in the whole business operates and why executives are with their packages. So in Britain, where a conservative prime minister Theresa May has introduced this reform, the British Institute of Directors has constructively engaged with it. Frankly it's been a bit odd to be told for years that we ought to be following America on corporate tax rates, then to have the same people turn around and say that we shouldn't be following American corporate transparency would be, let’s face it, downright weird.
PARKER: Would Labor ever seek to cap corporate pay?
LEIGH: That hasn’t worked out well. One of the interesting findings in the literature is that Bill Clinton's capping of pay in 1993 led to the explosion of stock options and the increase in total remuneration for CEOs. So we’re aware that these things can backfire. We believe that transparency is the right approach and that sits alongside other things Labor's done - a beneficial registry of share ownership so we know who really owns our firms, more transparency in terms of how much tax firms pay and gender pay gaps within firms publicly reported rather than just privately given to the Workplace Gender Equality Agency. The time for transparency is now.
PARKER: Where would you publish the information? Would they have to publish it in annual reports or would there be a centralized searchable database?
LEIGH: I think a centralized database would make sense, doing it through ASIC, that's the standard reporting. We wouldn't be rushing into this. We'd be giving firms time to adapt, but this is hardly radical stuff when we're talking about following the United States and a reform introduced by conservative prime minister in Britain. Greater transparency around pay is what many people want and demand now.
PARKER: Thanks, Andrew. Just before you go, Labor also want to well take some action on the fees that we all get charged in a credit card when we use them overseas.
LEIGH: Absolutely. The cost of sending money overseas is too high. Labor called in 2015 for greater transparency for this. It matters when we travel as tourists, it matters as well when migrants here want to send a bit of money back overseas. Often people working as a taxi driver will be looking to send money back to Fiji or somewhere can get stung by terrible fees.
PARKER: So you applaud what Josh Frydenberg the Treasurer is announcing today?
LEIGH: Well, all he’s announced is an ACCC review. I mean we know the answers to this - it's to provide full transparency so people aren't bamboozled by this combination of flat fees and exchange rate spreads, but they know exactly what they're going to pay. Some sites like TransferWise to their credit already provide information, but too many money transfer systems - including those operated by the big banks - are currently terribly opaque and overly complicated.
PARKER: Thank you, Andrew. Appreciate your time.
Authorised by Noah Carroll, ALP, Canberra.