Excessive executive salaries proven to damage the corporate bottom line

Unions will wage a three-pronged assault on executive pay in the wake of research shattering the mythological link between gold-plated executive remuneration and company performance.

The Labor Council of NSW will pressure for legislative change, greater activity by super fund trustees and grass-roots industrial campaigns to end the explosion in CEO pay, which has jumped to 74 times the average weekly wage.

The research, conducted by a team of academics commissioned by the Labor Council, found that the often-stated link between high executive pay and company performance does not exist.

They found that executive pay levels had exploded in the past decade from 22 times average weekly earnings in 1992 to 74 times average weekly earnings today. And in the finance sector the figures are more perverse, CEOs earning 188 times the salary of customer-service staff.

By analysing the performance of companies against three criteria - return on equity, share price change and change in earnings per share - the researchers found that excessive pay levels actually coincide with a worse bottom line.

"If you look at the numbers, it is accurate to say the more you pay a CEO the worse the company performs and the less you pay the better it performs," researcher Dr John Shields, from Sydney University's School of Business says.

Applying this analysis, the authors identified a performance-optimal range for executive remuneration of between 17 and 24 times average wage and salary earnings, beyond which the performance of a company begins to deteriorate. This means that any company paying its CEO more than $800,000 begins to be a bad bet.

Labor Council secretary John Robertson says research takes the debate about executive remuneration to a new level.

"This research shows that executive pay is not just a moral issue; it is a shareholder issue and it is a job-security issue," he says. "For workers, it shows that an excessively paid CEO is likely to preside over a weaker company, meaning their jobs are less secure.

A panel convened by the Labor Council found some common ground between Federal Opposition treasury spokesman Bob McMullan, shareholder activist Stephen Mayne and the Australian Consumers Association's Catherine Wolthuizen.

They highlighted the vital role unions can play, especially in their capacity as trustees of industry superannuation funds, which have significant holdings in the top companies.

Mayne says industry and public super funds with union board representation account for $150 billion, or a quarter of Australia's total market share.