10 August 2023
Is it ever possible to rationalise extraordinary pay packets for a few at a time when so many Australians are struggling?
This strange disjunction was crystallised for all of us when Deloitte chief executive Adam Powick told a recent Senate inquiry he earned $3.5 million last year. Senator Deborah O’Neill asked him whether he really thought he was “worth seven times the salary of the prime minister”.
He answered honestly. No.
Many Australians are having to make choices. Not about where they work, but about whether they eat or heat their homes, sleep in the car or on a friend’s couch. High salaries for high-profile leaders are clear targets as we see expanding social inequality.
Are those leaders ever worth such high salaries? That very much depends.
Outsized levels of remuneration come into sharp focus when truth and trust are lost. We naturally direct our anger at the very well paid when we don’t feel we are getting value for money; when performance by an individual or the organisation they lead is not what we expect, when we fear the people who should be taking responsibility are not stepping up.
Critics of former public servant Kathryn Campbell, who was secretary of the Department of Social Services, have been vocal in their attacks after the release of the final report of the Royal Commission into the Robo-debt Scheme. Among many findings, the report revealed that after leaving the department for a senior role in the Department of Defence in 2021, Campbell’s reported base salary was $889,853. That’s well above the prime minister’s pay and a staggering 17 times more than the median Australian salary.
Our anger over the robo-debt tragedy, quite rightly, amplified our shock at Campbell’s salary. (She has since resigned from her Defence job.) So, too did stories of the most disadvantaged Australians being hounded for what little they had, or didn’t have. After such an unmitigated disaster, we lost trust that those being paid so much actually deserved it.
But would we care as much about what Campbell earned – her remuneration had long been on the public record – if we hadn’t heard evidence she’d overseen policies that caused “consistent and alarming levels of distress” to those receiving Centrelink payments?
In my experience, there are many public and private sector leaders paid high salaries who do deserve them. In the private sector, high pay is linked to a clear expectation of high performance and investors keep a keen eye on whether executive pay builds shareholder value.
I’ve chaired public company remuneration committees, so I know first-hand that investors demand detailed explanations from boards on how they justify CEO remuneration. If an investor or proxy firm is not satisfied with the answer a board offers, they can vote against the annual remuneration report. This means boards are constantly reviewing market practice to ensure those high salaries are deserved.
The Remuneration Tribunal governs the salaries of federal department secretaries whose annual incomes range from $751,690 to $939,610. Move across to the private sector and ASX200 CEOs are paid, on average $1.14 million. And that doesn’t count any long or short-term bonuses those CEOs may earn.
Are these salaries justified? Can any individual make such a difference to deserve such outsized financial reward?
Yes, there are leaders who deserve to earn salaries many would argue exist in a parallel universe. But there are two vital caveats. One, high remuneration should only follow if the person earning it truly adds value. The “CEO effect” is hard to quantify and means in reality some CEOs are probably not paid enough, while others are definitely paid too much. Academic researchers have found the average contribution to a company’s bottom line by a CEO can be as low as about 4 per cent, or just over 40 per cent in other cases.
The second caveat is that those paid at the highest levels must be held to the highest levels of accountability. These leaders carry with them significant responsibility. Many will be entrusted with the livelihoods, the wellbeing and the safety of tens of thousands of people. They may make decisions affecting the lives of millions. Accompanying that responsibility, and pay packet, must be strict levels of accountability and of transparency.
The public sector doesn’t receive investor feedback. Instead, it gets voter feedback – and the former government certainly received that feedback in the wake of the robo-debt report.
In 2019, an independent panel led by experienced chair and business leader David Thodey conducted an independent review of the Australian Public Service. The panel delivered a sheaf of recommendations, among them, this: “Standardise and systematise performance management to drive a culture of high achievement.” The panel called for “transparency around performance expectations and management of secretaries”.
That recommendation was, unsurprisingly, referenced in the final report from the robo-debt royal commission.
We must do all we can to attract, hire and retain the best possible leaders and focus on the value they provide. To achieve that, we must pay our public servants and CEOs commensurately with the heavy responsibilities they carry.
When these leaders fail, they must be held accountable. Until the public feels our senior leaders are held to the same level of accountability as the rest of us, resentment at high salaries – even for high-stakes jobs – will continue.
Dr Kirstin Ferguson AM is an author, columnist and company director. Her weekly column, Got a Minute?, is published every Wednesday.