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Income caps and minorities to vote out boards?

September 30th, 2009 at 06:57pm

I really don’t comprehend the anger that so many people have for company directors and the like who are on multi-million dollar salaries. I mean, I understand the notion of not seeing how their office job could possibly be worth that much seeing as they get to sit in a nice air-conditioned office all day…but I don’t think people who have a problem with these salaries truly understand the nature of the work many of these people do, or how many people are affected by their position. These highly paid positions are enormously powerful and come with a great deal of responsibility…and as the saying goes, have you ever seen a poor man employing people?

The reason I mention this is that 2CC’s Mark Parton has written a blog post which knocked me off my feet, seemingly in support of changes to the Corporations Act which are being proposed by the Rudd government. To quote the relevant bits from Mark’s blog:

As I understand it, regular Joe investors will be given the power to sack entire company boards. I gather that ever director would be forced to stand down if as few as 20 percent of shareholders voted twice against executive salary packages…which may be a bit of overkill.

The big companies will be forced into greater transparancy and CEO’s will not be in a position to decide their own pay packets.

I understand that the report has dismissed calls to put a cap on how much CEO’s are paid.

We’ll see what gets put on the table later today. I think the mood is such that we need change in this area because a select few have just robbed us blind for far too long. It can’t continue.

Allan Moss formerly of Macquarie Bank is the most striking example. He was paid nearly $25 million in 2008. How can anyone be worth $25 million for a years work. That’s obscene !

I don’t usually get worked up enough to respond to Mark, but that kind of anti-business sentiment ruins economies, and it got me going (it probably didn’t help that I was already in an agitated mood). I have submitted by response to his blog, and am copying it here because I probably would have blogged about the subject anyway, and it saves me from writing another blog post about the same thing.

My response is below, in full.

I totally disagree. It’s called the free market, and directors are being paid whatever they’re able to be paid, just like the rest of us. In the case of Allan Moss, he was getting paid that much to deliver a strong return for investors, and in 2008 Macquarie had a 2.2 billion dollar profit before tax (1.8 after tax) which is a few hundred million dollars more than the previous year [1]. I’d say he earned his income.

As for the 20% can vote out a board…so much for a democracy. Hypothetically, why should I as a 60% or 70% owner of a company, be able to be overruled by a 20% minority…that’s like giving the Greens a pro-rata vote so that they’re equal to the Labor party in the legislative assembly even though they hold the least number of seats.

I agree in principle that directors shouldn’t be able to set their own remuneration without oversight from the shareholders (majority approval would be a working model), but I also believe that shareholders should also be able to vote to give the directors power of veto if that’s what the shareholders want.

The free market/capitalist system works when it’s allowed to work. Imposing socialist ideals on top of it such as income caps does nothing to incentivise people to work harder and help the business grow, which in turn leads to more employment, and more wealth for all, not just the people at the top of the pyramid.

[1]: Macquarie Annual Report (2009) page 230


Entry Filed under: General News,Samuel's Editorials

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