Daily BulletinHoliday Centre

The Conversation

  • Written by Julie Walker, Associate Professor in Accounting, The University of Queensland

Low wages growth has been a spectre hanging around the Australian economy for some time. In our series What We Earn we unpick the causes for this and why some workers might be feeling it more than others.

Even though shares and bonuses for CEOs have been fluctuating over the years, recently CEO salaries have remained stagnant. This trend lines up with the stagnant wages workers have been experiencing across the board.

I calculated the average CEO salary, bonus and remuneration for a sample of ASX100 firms, for the period 2012-2016. I only included firms with available data for the same CEO for the entire five year period, which was 45 of the 100.

Looking just at the salary component of remuneration, it’s clear CEO salaries plateaued across 2016 and 2015 with modest increases of 2.31% and 3.15% respectively. In contrast, CEO salaries increased by 7.54% and 8.53% in 2014 and 2013, well above the growth in average Australian wages. CEO salaries as a multiple of average Australian wages show a small but steady increase over the five-year period.

However CEO bonuses and share-based payments show a different story. Bonus payments were much more volatile across 2012-2016.

CEO bonuses are usually payments based on short-term performance. This explains their volatility across 2012-2016; the large increase in average bonus payments in some years and the large negative change for 2016.

Share-based payments are usually calculated with a standard accounting method and reflect the amount of shares a CEO owns during a year, rather than the money those shares earn during that period.

There’s been large increases in share-based remuneration awarded to CEOs in every year except 2014.

Share-based payments are also usually linked to the company’s share performance and so its value is subject to changes in both the individual business and the whole capital market.

Overall the data shows that growth in total CEO pay has outstripped average Australian wage growth in every year of the last five years. But perhaps we need to look more closely.

CEO pay is made up of a base salary component plus a mix of elements that are subject to fluctuation. These parts of the executive pay packet are influenced by many factors including firm size and complexity, individual company performance, internal benchmarks, share market performance, industry norms and the domestic and international economy. So many of the factors influencing low wages growth for Australian workers are also an important influence on CEO pay, although not necessarily in the same way.

For example, low wages growth has helped to moderate growth in labour costs for firms and so improving profitability. However, low wages growth has also been linked to higher unemployment levels, under-capacity in the economy, low consumer expectations about inflation and Australia’s weakening terms of trade. All of these factors will ultimately impact negatively on the profitability of individual businesses and it’s difficult to justify a large increase in CEO base salary if the firm is not performing well.

On the basis of the data provided, it’s reasonable to predict there will be a continued plateauing of CEO base pay and that any increase will, on average, be roughly in line with Australian wages growth. The other elements of CEO pay are much more unpredictable. Certainly if business performance slows, so will the amount of elements of executive remuneration that are variable because they are linked to performance.

Public scrutiny of executive pay and shareholder’s ability to vote against it with Australia’s two-strikes rule are also likely to moderate executive pay in the future. Pay levels well above industry norms or individual performance will continue to draw shareholder ire and a swift board reaction.

Authors: Julie Walker, Associate Professor in Accounting, The University of Queensland

Read more http://theconversation.com/why-australian-ceos-are-sharing-part-of-our-wages-pain-81999

INTERWEBS DIGITAL AGENCY

The Conversation

Politics

Scott Morrison on Credlin

PETA CREDLIN: Thank you for your time tonight, PM I know you've got a lot on your plate. I'll get to the issue of bushfires in just a moment, but I can't let it go unremarked that with Australia Day...

Peta Credlin - avatar Peta Credlin

Scott Morrison interview with Ray Hadley

RAY HADLEY: Prime Minister, good morning.    PRIME MINISTER: G’day Ray.    HADLEY: Jeez you copped a hammering while I was away.   PRIME MINISTER: Goes with the job mate.    HADLEY: Well, yo...

Ray Hadley - avatar Ray Hadley

Immediate small business support for bushfire affected communities

In response to the devastating bushfires, the Morrison Government has today announced a comprehensive suite of measures to immediately support impacted small businesses.    This initial package ...

Scott Morrison - avatar Scott Morrison

Business News

2019 Hottest FinTech Startups Overview

Modern technology is experiencing rapid growth, so many industries expect a so-called revolution, and the financial world is no exception. Over the past ten years, people have witnessed the emergence ...

News Company - avatar News Company

Australians need to look out for this US Crypto-platform

Good news for Aussie sports fans as UssCyber is soon to launch its very own crypto-currency sports trading platform. UssCyber, a blockchain-oriented company based in Florida, is introducing “World S...

News Company - avatar News Company

How to Choose the Right Data Recovery Solution for your Business

In the modern business environment, data is one of the most important commodities. A typical B2C seller, for instance, offering home delivery service cannot deliver the product to the right addres...

News Company - avatar News Company

Travel

The Family Travel Handbook from Lonely Planet

Everything you need to know to take unforgettable trips with your children   Full of practical advice, ideas and inspiration for every type of family, Lonely Planet's The Family Travel Handbook ...

Adam Bennett - avatar Adam Bennett

3 Ideas for a Family-Friendly Holiday to Bali

A family holiday is always an exciting time, but it can often come with its fair share of challenges, especially when trying to keep every member of the family happy. Thankfully, the beautiful islan...

News Company - avatar News Company

The Best Things to Do in Adelaide Hills

Adelaide Hills has long been a relaxing escape for the people of Adelaide and beyond. Its proximity to the capital makes it an accessible destination that feels like you’re miles away from the hustl...

News Company - avatar News Company

ShowPo