Friday, 27 February 2009

Capping executive pay will cause an increase in executive pay

In halls of power all across the globe politicians are getting themselves worked up about the issue of executive salaries and payouts, especially in circumstances where companies are going backwards or need government assistance.

Enter a man quickly building a reputation as Australia's
worst ever treasurer, Wayne Swan:
EXECUTIVE salaries had reached "sickening" levels, Wayne Swan said today, as he warned the Government is considering a cap on bosses' pay.

The Treasurer said the Government was exploring all options when it came to high salaries for executives in businesses where staff were being laid off.

“I think Australians want to see a fair system for all and I think they are rightly sickened when they see some executives walk away with large payments and many workers walk away with virtually nothing,” Mr Swan said.

He was speaking in Melbourne ahead of crisis talks over the planned sacking of 1850 workers at clothing manufacturer Pacific Brands between the company, unions and Industry Minister Kim Carr.
Parenthetically, Kim Carr is of the hard-left faction and is eerily similar to the incompetent
Wesley Mouch of Atlas Shrugged. His tactic is to provide government bailouts to industries that are heavily union controlled. The Wall Street Journal pointed out a few weeks back that Atlas Shrugged had gone from fiction to fact in just 50 years. It's a concern that most of the West's major economies are now run by the Looters.

The opposition has weighed into the debate - pretty much on the side of the government - with Shadow Treasurer Joe Hockey describing executive salaries as 'jarring' to those Australians who are losing their jobs or struggling to pay mortgages.

Ignoring the fact that most of the hype is designed to deflect attention from governments' attempts to 'fix' the crisis by looting the future earnings of today's young people.

In Australia, the government is conveniently ignoring the Institute of Company Directors' current reforms to the issue of executive pay and especially when a company is losing share price.

Leaving the aside, what will be the consequence of governments legislating a cap on executive remuneration?

The answer might be counterintuitive but it's higher executive pay.

Increased controls on company boards led to a number of companies reversing their decision to go public and list on the stock exchange.

This situation will be exacerbated if executive pay is capped as not only will fewer companies choose to list, especially into a poor economy in which increased share price will be a tough ask, but also companies may choose to de-list.

The net result will be that executives operating in companies not subject to public scrutiny will be able to achieve increased earning over their publicly listed counterparts.

With the balance of unlisted-listed companies increasing the overall remuneration for executives can only increase.

I do not believe that any company is entitled to even one cent of public money to bail them out but if it is going to be done then there is a fair case for the government to attach conditions to the assistance, which includes capping executive pay.

What happened on Wall Street was not a failure of government oversight but the direct consequence of government policy.

When people cry that Citigroup is 'too big to fail', for example, I point out that you could say the same thing about the Soviet Union.

(Nothing Follows)

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