Andrew Leigh

ACT Chief Minister Jon Stanhope has just announced his resignation. Here's my media statement.

A Lasting Legacy



Jon Stanhope retires from the position of ACT Chief Minister with Canberra as strong as it has ever been. Our unemployment rate is the lowest in Australia, our schools are first-rate, and our natural environment is a treasure for all Canberrans.

Mr Stanhope has been willing to make hard decisions about schools, roads, and health care. He has introduced new innovations such as ‘Chief Minister’s Talkback’ – making government more accessible. We have Australia’s first prison built to meet human rights obligations, focused on getting the crime rate down through better rehabilitation programs. Mr Stanhope has stood up against discrimination wherever it raised its ugly head. Under his government, economic growth and social equity have gone hand-in-hand.

If there is a signature ‘Stanhope Style’, it is his deep understanding of Canberra’s history, geography and community. Few others can aspire to Mr Stanhope’s knowledge of our city and its diverse heritage. His pride in his home is unmatched.

Throughout his time in office, Jon Stanhope’s government has been marked by its unity and purpose. Though Mr Stanhope will be missed, I am confident that Katy Gallagher will be a worthy successor. Ms Gallagher will lead the Labor team to the 2012 election with a spirit of optimism and a determination to make the essential investments to keep our city strong.

I wish Jon Stanhope and his wife Robyn all the best for the next phase of their lives. Whatever opportunities Jon chooses to pursue, I am sure Canberra will continue to benefit from his passion and energy.

Andrew Leigh
Federal Member for Fraser

It’s gone largely unremarked in the press, but Julia Gillard has been giving some terrific speeches over recent months. For pure oratory, some of the best include:

• the Whitlam oration (citing Walt Whitman)


• a statement to parliament on Afghanistan


• the St Patrick’s Day lunch


• the CEDA lecture


• a condolence motion for victims of the summer natural disasters


• an address to the US Congress


• an after-dinner speech to the Australian-American Association

My AFR article today is on executive salaries.

CEO Pay a Balancing Act, Australian Financial Review, 3 May 2011

‘The other side just doesn’t get it’ is a common refrain in Australian policymaking these days. But nowhere is it truer than in the CEO pay debate. One side points to skyrocketing salaries, with the average pay of a top-100 CEO rising from $1 million to $3 million since 1993 (about twice as fast as the pay of other workers). The other side argues that investors put their life savings on the line, and asks why society should prevent shareholders from choosing the remuneration package they want for their managers.

In reforming executive remuneration, it’s important not to forget the role that great managers play in underpinning economic growth. In a classic 2003 article, economists Marianne Bertrand and Antoinette Schoar showed that many of the systematic differences between firms could indeed be traced back to managers. A manager in the top quartile increases the rate of return on assets by about 3 percent. One in the bottom quartile reduces the rate of return on assets by about 3 percent. The authors quote former Citigroup CEO John Reed: ‘In the old days I would have said it was capital, history, the name of the bank. Garbage – it’s about the guy at the top’.

In the early-1980s, there were real concerns that one of the constraints on growth for Australia was the poor quality of managerial talent. You don’t hear the refrain as often these days – partly because we do a better job of training business leaders, but also because our nation has been willing to hire non-Australian CEOs where they’re the best for the job.

Yet aligning pay and performance is critical. People rightly worry when they hear stories about corporate bosses receiving multi-million dollar severance packages and extraordinary perks (my favourite is the Nabisco CEO who sent a corporate jet to pick up his dog from Colorado, describing him as ‘G. Shepherd’ in the manifest). Such excesses send ripples beyond any one firm – affecting the way many people view executives in general.

In this environment, the Government’s executive pay reforms aim to steer a middle way between the twin extremes of doing nothing (as many in the Liberal Party would prefer), or abolishing tax-deductibility of salaries over $1 million (as the Greens Party advocate).

Four elements to the package – which arose from a Productivity Commission report into executive salaries – are the two strikes rule, rules ensuring the independence of remuneration consultants, a ban on closely related parties from voting on a pay package, and rules against hedging incentive remuneration.

The two strikes rule says that if a sizeable minority of shareholders (more than 25 percent) vote against a remuneration report two years in a row, then that will trigger a motion to spill the board. Of course, majority voting still applies to any spill motion and the reappointment of directors, but the measure provides a check on pay packages that are opposed by a significant share of those who own the firm.

Second, the rules on remuneration consultants require that both the remuneration consultant and the company board formally declare that remuneration recommendations are free from undue influence. Consultants will also have to disclose how much they were paid, and any other ties they have to the company.

Third, bans on closely related parties means that executives and their family members will be prevented from voting on their own pay packages. This reduces both actual bias, and the perception of bias, which is vital to maintain public confidence in corporate Australia.

Fourth, the government is stopping executives from unwinding incentive remuneration by prohibiting them executives from hedging their incentives. Ordinarily, it’s good to see people using futures markets to reduce risk, but in this case, the impact is perverse. For the same reason we don’t let football coaches self-insure by betting on the other side, it’s a bad idea to allow CEOs to hedge incentive pay.

There will always be individuals who say that they weren’t consulted or that there wasn’t enough time to respond to proposals, but the reality is that Parliamentary Secretary to the Treasurer, David Bradbury has overseen a pretty extensive consultation process, including hundreds of written submissions and a spate of stakeholder meetings.

Economists often worry about the ‘equity-efficiency tradeoff’ – the potential for growth-enhancing policies to increase inequality (and vice-versa). Yet by better aligning pay with performance, we face the best of all possibilities – a reform that can both increase company performance and curtail the worst corporate excesses.

Andrew Leigh is the federal member for Fraser.

A few links that have caught my fancy these past few weeks.

• How openness helps - new results from immigrant players in national basketball teams


• Recalculating global poverty rates


• Better ways to appraise teachers


• A proposal to cap individual tax breaks


• Why market-based mechanisms to address climate change are so much more effective than regulations


• How do doctors respond to pay-for-performance?


• Gay marriage in the US - decomposing changing attitudes, and reconsidering the impact of direct democracy on minorities


• An empirical analysis of the Tea Party movement


• Costing public projects - it's harder than you think


• How Chinese local elections improve accountability


• ...but some concerns about the recent crackdowns at the national level


• Why Argentine conscripts are more likely to become criminals

I hosted* an event today in Parliament House for the release of a new ANU poll, which looks at the relationship between internet use and civil society. It's an issue that I wrote about in my book Disconnected, and I've long had a concern that internet use might be crowding out community engagement.

It's always risky to draw causation from simple correlations, but the results of the poll do seem to point towards a dampening effect. As you can see from the table below, frequent internet users are 13 percentage points less likely than rare internet users to be active in voluntary organisations. Frequent internet users are also 6 percentage points less likely to be active in politics, 8 percentage points less likely to serve on a jury if called, and 13 percentage points less likely to always obey laws and regulations.



That said, I don't think it automatically follows that better broadband will reduce civic engagement. As we've seen over the past decade, shifts in technology (eg. from dialup to broadband) fundamentally change the way we use the Internet. My hope is that applications such as high-definition video-conferencing will actually be complementary with stronger community life. And there are existing applications - from Meetup.com to online mental health support groups to Facebook places - which take advantage of the best of the net to build social capital.

* Meaning that I booked the room and popped along to discuss the results.