- The Reserve Bank of Australia (RBA) governor Philip Lowe has weighed in on the news that Australia’s top-paid CEOs are raked in $10 million or more each last year, saying it “disturbs” him.
- With Qantas CEO Alan Joyce taking home $23.87 million at the same time that Australian workers haven’t seen a substantial wage increase, Lowe acknowledged that there were people in the community who think “they don’t need these mega salaries”.
- Slow wage growth remains a thorn in the side of the economy, with Lowe acknowledging that getting Australian workers pay rises is one of the most important objectives of the RBA.
The revelation that Qantas CEO Alan Joyce pocketed nearly $24 million last year unsurprisingly created something of a stir.
After all, it’s an ungodly amount of money when compared to the wages of your average Australian – wages which haven’t seen a decent lift in years. Even Reserve Bank of Australia (RBA) governor Philip Lowe has now slammed it.
“As a regular Australian, it disturbs me. Some people who are paid extraordinarily high amounts of money and working Australians have relatively low wages and getting small wage increases, I think it’s an issue for the society,” Lowe told the Armidale Chamber of Commerce.
Joyce wasn’t alone. Former Macquarie Group CEO Nicholas Moore departed the business with just $21,000 less than Joyce took home. In fact of the top ten paid CEOs in Australia last year, not one received less than $10 million.
“The community, they will say, well, they don’t need these mega salaries,” Lowe said.
He’s right given that many in that community have been getting paid more or less the same as they were years ago. With the rising cost of living and the extraordinary cost of housing in some capital cities, it likely feels like even less.
That’s not to say CEOs aren’t doing a good job. Joyce, for example, has helped steer Qantas, a once-ailing national liability, into a huge profit-making enterprise. Moore, who took over Macquarie Bank at the height of the GFC has also left the business in far better nick than he found it.
The question Lowe poses, however, isn’t regarding the ability of CEOs but rather a status quo that rewards the work of a few excessively while the pay of the vast majority of workers stagnates. If Joyce was to work for $8 million, for example, would he really be incentivised to work at a quarter of his capacities? Lowe, who is paid $903,000 a year, thinks it’s doubtful. For the record, he says he refuses to be paid a performance-based salary.
“I’ve got a flat salary and I say to my board, look, don’t consider performance, because you know, I’m going to work as hard for you and for the people who show up regardless. Actually, I think a lot of people are like that,” he said.
“I don’t need the incentives, my incentive is to do a good job for the people.”
While some may be of a different mind, it stands to reason at some point pay incentives become subject to the law of diminishing returns. Where an extra million might not be missed by Joyce, a $10,000 pay rise to 100 Qantas workers could make a world of difference – both to the quality of the work they do, and the economy as well. A group of cashed-up workers is able spread their money across the economy in a way that a single CEO simply can’t.
It’s an issue close to the RBA’s heart.
It has long signalled that when it comes to getting Australia’s economic cogs whirring again, the name of the game is wage growth. The main means the RBA has spelled out for doing so has been to get unemployment to 4.5% with wage growth presumed to follow. As more money ends up in the pockets of the everyday man and woman, they’ll feel more inclined to spend it. That money, in turn, flows through the Australian economy, creating jobs in a virtuous economic cycle.
That’s the idea anyway.
The problem with the RBA’s equation is it can’t get the first part right. Despite the creation of tens of thousands of new jobs, the number of people looking for work is at such a record high that it’s not enough. Unemployment, instead of shrinking, is actually slowly rising as a result.
The RBA’s principal means for accelerating the economy is to cut the official interest rate. Sitting at 1%, there’s only so much lower that can go, while the recent two cuts appear to be doing little to get consumers spending. Instead, Australians appear either content to pay down the eye-watering level of debt they’ve accumulated, or to jump into the property market, rising house prices – something the RBA specifically wants to avoid.
So the RBA has been desperately looking elsewhere for solutions. From petitioning the government to loosen the national purse strings to considering unconventional monetary policy such as quantitative easing, Lowe has been busy.
The latest conversation around CEO wages is just the latest throw. Lowe is certainly not suggesting a forceful redistribution of wealth, but he is talking about the economic folly of excessive pay accumulating at the top of the corporate ladder while it appears to be drying up at the bottom.
Business Insider Emails & Alerts
Site highlights each day to your inbox.