Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.

 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate


On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.


RSS 2.0

A cap on CEO salaries - creeping socialism?

By Dino Cesta - posted Monday, 16 March 2009

There’s an element of “irrational exuberance” regarding the level of CEO and senior executive remuneration. While some of that concern is warranted, there’s also an aspect of hypocrisy being played out in the public domain by politicians on all sides of the political fence.

If politicians wish to play devil’s advocate when it comes to CEO remuneration, then it’s only fair and reasonable that similar standards apply to them. As governments contributed to the disorder that the world economies now find themselves, should taxpayers also have the right to demand that politicians’ salaries be frozen or paid salaries and parliamentary pensions be recouped from politicians who failed to prevent or contain the current economic crisis, and perhaps, past economic crises?

Should we demand that former Prime Minister and Treasurer Paul Keating refund his parliamentary pension pay-out because of the “recession we had to have”, or demand that parliamentary members of the NSW State Government refund their salaries due to their seeming inability to manage the State economy?


Where do we draw the line? Are Australian CEOs being unreasonably targeted for the unscrupulous behaviour of certain CEOs in countries such as the United States and Britain? Or for the ineffectual financial system policies that contributed to the current economic malaise that the world finds itself in?

Comparatively, Australian companies across many sectors have fared reasonably well against the backdrop of a gloomy global economy. While major overseas organisations have delivered negative profit results in the billions and have been assisted with ongoing government bailouts, during the most recent reporting season, a Goldman Sachs JB Were report noted that Australian-based companies delivering positive results outweighed companies with unsatisfactory results by ten to nine, with the remainder of companies performing within expectations.

Some of that credit should be directed to many Australian CEOs’ prudent decision-making in steering their companies through the current turbulent economic operating environment. While there will inevitably be exceptions to the rule, we should not be tainting all CEOs with the same brush.

CEOs are easy targets in placing culpability in such an environment. A balanced perspective, however, is needed on the debate of CEO salaries. It may be currently politically expedient to attack CEOs. However, there may be long term consequences of this political opportunism in an attempt by both past and present governments to deflect their own failures in contributing to and containing the crises in the economy.

If Australia wishes to attract and retain quality CEOs and senior executives, it must offer remuneration packages that are internationally competitive. By excessively restricting the salaries of CEOs and senior executives or require them to refund past payments, we risk losing the best talents to overseas countries and companies. The resultant brain drain will have dire long term consequences for Australia’s next phase of economic prosperity.

There is arguably a creeping socialism in motion by proposing to place a cap on CEO salaries, and does it risk setting a future precedent targeting other salary earners, or even the maximum assets any one individual can own? The Australian Government therefore needs to be heedful in not rewinding the clock to pre-deregulation days and risk becoming an increasingly regulated “sickle and hammer” state.


There is nonetheless merit in evaluating some of the options being proposed as part of the debate - including empowering shareholders with the authority to restrict termination payments over a specified amount, particularly in cases where the CEO or executive team have failed to deliver results on behalf of shareholders; and limit remuneration packages of CEOs in which companies financially gain from government bailouts.

It is, however, a questionable practice to place a cap on CEO and senior executive remuneration packages or to require shareholders to approve their remuneration. We need to ensure that market forces, albeit imperfect, still play a fundamental role in setting remuneration benchmarks, in alignment with the industry in question and/or international standards. A possible CEO remuneration option for inclusion is to incorporate a bonus potential based on jobs creation in the company.

On the surface, the attractiveness in providing shareholder investors with greater powers in approving CEO salaries offers an additional checking mechanism, particularly in cases where salary increases and/or short and long term bonuses rewarded to CEOs do not correlate with the financial results delivered by the company or cost of living pressures. If shareholders have the right to vote for and against multi-billion dollar takeovers and acquisitions, why not on a CEO’s remuneration?

  1. Pages:
  2. Page 1
  3. 2
  4. All

Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

20 posts so far.

Share this:
reddit this reddit thisbookmark with Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Dino Cesta is a freelance communicator of thoughts, opinions and ideas on politics, economic and social issues and public policy. Cofounder of the non-profit organisation Hand in Hand Arthouse, and the Newcastle Italian Film Festival, Dino graduated with a Bachelor of Economics and Master of Politics and Public Policy. You can follow Dino on View from the Obelisk or Twitter on @dinoc888

Other articles by this Author

All articles by Dino Cesta

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 20 comments
Print Printable version
Subscribe Subscribe
Email Email a friend

About Us Search Discuss Feedback Legals Privacy