Unions want to set employers’ pay too

We’re well and truly used to unions trying to boost the wages of their members, but now the Australian Council of Trade Unions wants to set bosses’ pay as well.

The organisation’s triennial conference, which kicks off tomorrow in Brisbane, will call for the Rudd Government to introduce legislation that would cap an executive’s salary at 10 times the average weekly full-time earnings of their employees.

“Outrageous executive salary and bonuses encourage a culture of excessive risk taking and short-term thinking that is widely acknowledged as a major cause of the global financial crisis,” thundered ACTU Secretary Jeff Lawrence in this morning’s Australian Financial Review.

According to a report in The Australian, performance bonuses would be allowed only if the company performed better than its peers for at least five years, the executive has made a significant contribution to the company’s superior performance and the executive’s work “provided the foundation for sustainable business growth”.

Base salaries of directors would be subject to a “reasonableness requirement” that would examine the skills, experience and complexity of the enterprise.

Great idea, Jeff. Just when we need a bit of risk taking to stimulate this economy and create more work for your members, you come up with an idea that would send every smart entrepreneur and business owner running for the airport to get their first plane to anywhere else.

Why start a business in Australia in the knowledge that your earnings are capped by the Government? It would be much smarter to head overseas and build a business unfettered by such ridiculous anti-entrepreneur regulation.

There’s no chance the Rudd Government will adopt such a silly proposal – we think Lawrence is probably trying to stir up a bit of publicity for the union’s big shindig – but it’s worth using this incident to take stock of what is happening with executive pay.

Lawrence may have a point that executive salaries ballooned during the last five years, but he should also realise that companies have moved very quickly to reign in pay rates for their top executives.

We’ve seen across-the-board pay cuts at banks, a two-year wage freeze for executives at Wesfarmers and remuneration experts are tipping director and executive salaries will drop sharply next financial year too.

The idea of pay caps isn’t just silly, it’s also outdated.