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The problem with CEO pay rises


Cost of living has been at the centre of public discourse for what seems like an eternity. Rarely does a day go by without claims and counter claims being made about what more needs to be done. Poor planning, policy inaction and greed have brought us to where we are today. For decades we have allowed our governments and corporate Australia to dismantle or bypass many of the guard rails which might deter some of the worst of corporate excesses and government policy failures. Our regulators and the fourth estate, which we rely upon to hold politicians and corporate leaders to account, have consistently failed by acting too late, or not at all.

As a society we appear to have all but surrendered control over our social and economic wellbeing to a political and economic system which struggles to give priority to the common good ahead of self-interest. The consequences of this will be profound if we don’t move to address the power of corporate Australia and its influence over our democracy.

In 1891 Pope Leo XIII issued his papal encyclical Rerum Novarum. It is one of the Church’s most influential statements on capitalism, framing a set of governing principles for a market-based economy which remained central to the workings of our economic system for much of the early 20th century. At its heart Rerum Novarum offered the secular world a vision of a fairer market-based economy where labour is justly paid, freely and equitably agreed upon with the employer and where the state protected the vulnerable and acted in the common interest of the society as a whole.

Similarly profound was the Harvester case of 1907, which is credited as being the foundation of Australia’s minimum wage system. The judgment in the Harvester case was significant because the court determined the parameters for setting a just payment to a worker, and in doing so introduced the concept of a minimum living wage. In that case Justice Higgins determined that the minimum wage for an unskilled labourer should be enough to feed, house and clothe a family of five. By the late 20th century this particular construct of a minimum living wage was abandoned.

The economic environment and dynamic of our society have changed significantly since the times of the Harvester case and Rerum Novarum. The welfare state in Australia has grown significantly providing income support, albeit inadequate to those in society unable to work. Nonetheless, the state seems, or is at least trying, to fulfil its obligations to protect the vulnerable and act in the common interest of the whole of society.

However, employers seem to have been allowed to evolve in a manner where their level of power and authority is ever more difficult to keep in check, resulting in a perception that corporate Australia is now able to sit outside societal norms and expectations, seemingly only accountable to their shareholders.


'Governments, state and federal, need to act to address the underlying causes in our drop in living standards and cost-of-living crisis. The question is whether they will act on their own volition or wait to be pushed into action.'


In May 2024, the Albanese government handed down its budget in which it projected an inflation rate for the Financial Year 2024/25 of 3.5 per cent, down from previous years where inflation hovered at around 6 per cent. On 3 June the Fair Work Commission determined that the minimum wage should be increased by 3.75 per cent, effective from 1 July 2024.

In their submissions to the Fair Work Commission, several employer bodies argued that any lift to the minimum wage should be limited, citing a slowing economy and the harm any significant increase would have on employers and the broader economy. When it comes to the arguments about the quantum of increase to the minimum wage it is stock in trade for employer groups to argue for a lower increase, while conversely the union movement will argue for pay increases higher than is often awarded. However, in this latest case it is worth noting that the Australian Chamber of Commerce and Industry argued that any increase to the minimum wage should be kept to below 2 per cent, a full 1.5 per cent below the projected inflation rate.

The proper working of our economy is predicated on there being a role for government, business and consumers (society). It is an interdependency which requires rules and goodwill to function effectively. It requires checks and balances to ensure that the actions of one group do not overwhelm the capacity of the others to function.

The arguments put before the Fair Work Commission by the employer groups in the minimum wage case, offer a window into what the business world sees as its priorities and its position within society. When the Wage Price Index is consistently at or below inflation, the business community is condemning society to a stagnate or reduced living standards. When the share of productivity gains to employees is reduced, it says shareholders matter more than society. When it provides double digit pay rises to its executives while arguing that those on the minimum wage deserve two percent it signals to society that employees are merely input cost to be managed.

So, at a time when Australians are struggling with cost-of-living pressures we bear witness to the captains of Australian industry rewarding themselves with base pay increases seven times what the Australian Chamber of Commerce and Industry argued should be afforded to the lowest paid workers in Australia.

A recently released remuneration survey by the Governance Institute of Australia found that the base pay (excluding bonus payments) for listed company CEOs increased by a staggering 14 per cent over the last 12 months. The survey also found that on average, their workers received increases in the order of 5 per cent, about a third of what the executives received. It begs the question: why does this happen?

In their submission to the Inquiry into Price Gouging and Unfair Pricing Practices, Professors Flavio Menezes and John Quiggin stated that where there is excessive market power, whether by geography or industry, employee wages will be lower and conversely wages for CEOs and management will be higher. So strong is the correlation between market power and higher CEO wages that research undertaken on executive wages from between 1994 and 2019 assigned on average 45.8 per cent of a CEO’s pay to market power. Menzes and Quiggin also submitted that firms with market power amplify inflationary shocks that follow a boost in demand.

The upshot is that market power lifts the wages of executives, suppresses the income of employees and exacerbates cost of living pressures.

We have been failed by successive governments that have allowed the self-interest of corporate Australia to trump the common good. We have seen market power grow overtime in sectors such as energy, insurance, banking and retail to the detriment of society as a whole. Market power is a function of competition and the lack of effective market competition in many of our sectors has made the current cost of living crisis worse.

Government action at both the state and federal levels have been dealing primarily with the symptoms of failing competition policy. They have provided rebates and tax cuts in the hope that this will provide some financial relief to households in the short term. However, it will only be a matter of time before the goodwill from these measures evaporates and governments will be faced with having to confront the real issue of decades of inaction on proper competition policy and consumer protection to curb the insatiable appetite of corporate Australia to maximise their financial position at whatever cost to the common good.

Our society willingly participates in a market based economy and democratic system of government. However, there will come a time when the community says enough is enough. Governments, state and federal, need to act to address the underlying causes in our drop in living standards and cost-of-living crisis. The question is whether they will act on their own volition or wait to be pushed into action. Let’s hope for their sake it’s not the latter.




Joe Zabar is the Chair of Mercy Works Ltd and a Visiting Fellow with the Tax and Transfer Policy Institute, ANU 

Main image: Inequality in income distribution is increasing. (Cemile Bingol)

Topic tags: Joe Zabar, CEO, Salary, Minimum Wage, Capitalism, Competition



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Existing comments

The same greed preceded the French and Russian Revolutions. It won't be too long before our erstwhile Judeo-Christian civilisation is torn by revolution - we do things more rapidly than did our revolutionary predecessors.

John Frawley | 26 June 2024  

Joe and John,
I completely agree with both your comments on the growing inequality in our society. I'm old enough to remember the huge fights between Unions, Employers and the LNP Governments in the 1960's.Maybe its time that the workers flexed their muscle again. The corporate greed of the last few decades must end for the sake of the fabric of our society.

Gavin A. O'Brien | 27 June 2024  

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