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'Put a Cap on eye-popping incomes'

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  • 'Put a Cap on eye-popping incomes'



    It's the first day of spring and time to take a fresh look at the world.

    To resolve the serious problem outlined in my previous blog we should be pushing the Government to legislate a maximum income alongside regulations setting the minimum wage.

    There can be little doubt the salaries and bonuses of senior company executives (and some public sector CEOs) are out of control. Everywhere in the world there is frustration at the seeming impotence of governments to deal with the naked greed of these corporate types and the boards who set their salaries and bonuses.

    Over the past week the main criticism of high salaries and eye-popping bonuses for our chief executives here has been that bonuses have been paid in full despite drops in profit for the companies concerned.

    Telecom CEO Paul Reynolds's total income package of $5 million included full payout of his bonus despite a 44% drop in profit. A similar story applies to Air New Zealand CEO Rob Fyfe, who was similarly rewarded with all his bonus despite falling revenue and company profits.

    In their defence these companies explain that their bonuses this year were unrelated to income or profit levels. Instead they were designed around reorganising and reorienting their businesses. This sounds fine but what it really means is that these senior staff have renegotiated their bonus structures to "recession-proof" their incomes. So while companies are asking staff to accept no pay increases or even cuts in pay, and are citing falls in revenue and profits as the reasons, the same senior staff are smirking all the way to the bank.

    Interestingly, many company shareholders are deeply disturbed at what they see as corporate largesse at the highest levels in many companies. Senior staff have been described as behaving like "de-facto owners" of the businesses they work for as they serve themselves handsomely at the expense of workers and shareholders. But the real losers are always the workers whose work creates the income for the companies in the first place.

    Employees of Telecom and Air New Zealand are good examples. Telecom is trying to force maintenance workers to become independent contractors, which will result in lower pay and poorer conditions of work. The savings will go to shareholders and senior executives. Similarly Air New Zealand workers have also suffered redundancies and poorer conditions of employment forced on the workers through numerous restructuring exercises.

    The problem for low-paid workers on the minimum wage is the same as that which drives corporate incomes. In both cases markets have failed to value the work in an honest, humane manner. Intervention is needed at both ends.

    So where should the appropriate maximum income be set? Paul Reynolds's obscene $5 million income is close to 200 times the minimum wage. My pick would be to set the maximum income at 10 times the minimum wage. This would mean a maximum income of $250,000. The easiest way to enforce this would be setting a 100 per cent income tax rate for the combined income from all sources (including share allocations, allowances etc) above this level.

    Linking the maximum salary to the minimum wage would have the added advantage of providing an incentive for the highest paid to lobby for increases in the minimum wage, unlike the present situation where the corporate sector argue for the lowest minimum wage possible.

    And please don't tell me we need high incomes in these positions. We may need higher incomes to attract the likes of Paul Reynolds but why would we want him? There are any number of senior Telecom staff who could take over the Telecom CEO's job and do it just as well for 5 per cent ($250,000) of Reynolds's income.

    There will also be the argument that New Zealand will lose its best and brightest overseas but this has no foundation. People come to or remain in New Zealand for a host of reasons beyond the narrow attractions of cash. The benefits of an incomes cap accrue to us all. There is now robust research to clearly show that the prevalence of social problems decreases dramatically in countries with lower income inequality. We all end up with better lives.

    I think increasingly people see the emptiness of the capitalist doctrine - "the winner is the one who dies with the most toys" - for what it is.

    Let's give the opportunity to those who see service as their primary motivation.

    This blog was on the stuff site, and boy did he get a roasting in the comments section. What do our locals here think??

  • #2
    What a load of tall poppy crap.

    Comment


    • #3
      Fully agree with the sentiment of the blog.
      Sounds like the roastings came from those who are over paid and underworked.
      Everybody else is too busy trying to earn a living.
      "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

      Comment


      • #4
        Perhaps to add some numbers to the perspective:

        $5M = 0.3 cents per share (1.86B shares issued)
        $5M = 0.09% of company revenues ($5.60B in revenue in 2009)
        $5M = 0.55% of company wages bill (total Labour bill $909M in 2009)
        $5M = 0.07% of company total assets ($7.04B total assets in 2009)

        Link to Telecom Annual Report:

        Comment


        • #5
          Soooo.
          Also equals about $1.15 for each new Zealander.
          For a country the size of New Zealand nobody is worth $5,000,000 in salary or bonus.
          "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

          Comment


          • #6
            Yeah I think CEOs are way overpaid, but you can't legislate against that sort of thing. The shareholders have to stand up and say they think it's wrong and it will stop pretty quickly.
            Squadly dinky do!

            Comment


            • #7
              If this happened, New Zealands population would half!

              Even those that dont earn that much would because there would be no jobs. Why, as a business owner would you take risks to have a maximum income of $250k.

              Re CEO's: supply and demand. Board of Directors would hire someone cheaper if they thought they could do a better job.

              Comment


              • #8
                But Dave that is nonsense. All that would happen is that the best people would go offshore. If you are good enough that shareholders are happy to pay you millions then that is fantastic. This poverty mentality whenever anybody is successful is very sad.

                Comment


                • #9
                  If you are good enough
                  How much was Telecom's drop in profit?
                  "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

                  Comment


                  • #10
                    Originally posted by Dean Letfus View Post
                    But Dave that is nonsense. All that would happen is that the best people would go offshore. If you are good enough that shareholders are happy to pay you millions then that is fantastic. This poverty mentality whenever anybody is successful is very sad.
                    But do you need to pay $5 million to get someone good to do the job?

                    Surely $1 million would get you queues of applicants who are good enough.

                    And as pointed out, half the time all they're doing is lining their own pockets by making short term share price gains so that they can cash in personally. And that's the real problem, their personal gain is so great it outweighs their ability to steer the company correctly over the long term. The short term incentives are just so huge. Pump the share price up, dump out. Pump and dump. How many times should it be allowed to occur before the market says enough is enough?

                    If they stopped this nonsense overseas, then we wouldn't lose our best and brightest CEOs.

                    And I think in the end, commonsense will prevail and shareholders won't put up with CEOs ruining their companies and then buggering off with a huge payout. And why should they? Surely the CEO is there to create shareholder value?
                    Squadly dinky do!

                    Comment


                    • #11
                      But isn't that just about us being basically jealous of anothers success. Who says there is some limit to how much you should get paid?
                      I think it's just a socialistic culture issue we have imbibed from Helen. EArn what you can providing you aren't doing it dishonestly.
                      We all love the stories of the overnight sensations who sell their businesses for a fortune but we resent pepole who have found a way to get paid a fortune every year. Just drivel!!

                      Comment


                      • #12
                        How much was Telecom's drop in profit?
                        It dropped by 7% of annual revenue.

                        ... and how much might it have dropped through a period of substantial organisational change had there not been a capable individual at the top?

                        The majority of millionaires in this country are small business owners, and I admire most of them in creating the rewards that come with hard work and prudent investment. Plenty of these folks started from nothing too. Why would a successful business operator, generating profits over $1M per year take a paycut to manage a business 100 times the size, and critical to the NZ economy? To attract top talent you need top dollars.
                        Last edited by roseneath_rat; 01-09-2009, 10:13 PM.

                        Comment


                        • #13
                          Originally posted by Dean Letfus View Post
                          But Dave that is nonsense. All that would happen is that the best people would go offshore. .
                          The majority do. That's why Oz and the UK and Europe are brimming with Kiwis. They pay great money for great staff. Wages here in NZ for 'normal' people in 'Normal' jobs are a JOKE In 2001 when I left the UK, I was earning the equivalent of $1200 NZ per week. My hubby (who is at the top of his profession) doesn't even get paid that in 2009.

                          (cue the " well go back to the UK" brigade..)
                          Jo Birch
                          Looking for someone to manage your next project or event? Then call now!
                          +61 450 148 678

                          Comment


                          • #14
                            Originally posted by Dean Letfus View Post
                            But Dave that is nonsense. All that would happen is that the best people would go offshore. If you are good enough that shareholders are happy to pay you millions then that is fantastic. This poverty mentality whenever anybody is successful is very sad.
                            Got no problem with success and its rewards.
                            Difficult times yes, but he is running the closest thing to a monopoly we've got.
                            Cant see what one man can actually do to earn $5 mil per year.
                            Whats your level for obscene rewards Dean $20 mil, $50 mil?

                            Just confirms the image that big Business is a big boys club where those in the know cream the small investor/employee/customer.

                            I used to be a rabid capitalist, but now I am not so sure.


                            Mr Rat
                            You're surrounded by big buck honchos, what's you're view.


                            Cheers
                            HermanZ

                            Comment


                            • #15
                              There isn't one Herman that's the point. Welding obscene to income is just silly. Some rockstars earn 50 to 100 mil a year through leverage. If you can be a bilionaire why not. There is no intrinsic evil attached to profit unless it is earned through devious means.
                              As I said if you can find awya to get paid a fortune every year do it, why wouldn't you?

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