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To rescue the global economy from reckless power suits, we just may need a 'maximum wage.' So say Australia’s top labor leaders and a fairly daring cohort of MPs in the UK.

You don’t need to be particularly bold, not these days, to blame excessive executive compensation for a good chunk of what ails the world economy. Over recent months, a wide array of public figures — from government and business to academia and the press — have been doing just that.

The latest observer to underscore the dangers excessive executive rewards inevitably create: Jeff Lawrence, a top-ranking leader in Australia’s national labor federation. 

"Outrageous executive salaries and bonuses," Lawrence noted last week at the Australian Council of Trade Unions triennial congress, have "encouraged a culture of excessive risk-taking and short-term thinking that is widely acknowledged as a major cause of the global financial crisis."

"Year after year of virtually unlimited increases in CEO pay packets," Lawrence would go on to add, have left executive remuneration "out of all proportion with the work performed."

Nothing exceptionally bold in that observation. But you do have to be somewhat daring to propose what Lawrence — on behalf of Australia’s labor movement — proceeded to say next. The union leader called on Australian federal officials to cap corporate executive pay at ten times an enterprise’s average worker wage.

What about executive bonuses? The Australian labor movement wants "performance" incentives strictly regulated — and limited to situations where companies out-perform their peers over a full five-year span.

How boldly, comparatively speaking, does this Australian pay cap push stack up against executive compensation reform efforts in other nations? In the United States, lawmakers are still struggling to get shareholders the right to take mere advisory votes on executive pay.

In 2007, chief executive compensation at America’s top 500 companies averaged 344 times average worker take-home. In Australia, the latest stats put the CEO-average worker pay gap at 63 times, up from just 18 times in 1990. That’s enough to outrage Down Under labor leaders.

"Corporate Australia has lost its moral compass," Australian Council of Trade Unions president Sharan Burrow charged at last week’s labor congress.

"Outrageous multi-million bonuses," she pointed out in Brisbane, "are still being pocketed by the engineers who created a financial house of cards that toppled over and is now destroying the livelihoods and the homes of millions."

The ACTU ten-times cap proposal figures to get a hearing. Australian Prime Minister Kevin Rudd, this past March, asked the national blue-ribbon Productivity Commission to weigh in on the overall executive pay question. He directed the panel to "examine all workable options" for ensuring that executive pay packages "do not reward excessive risk taking or promote corporate greed."

The commission will likely report out recommendations this December.

Meanwhile, in Britain, nine members of Parliament have just introduced legislation to place "a cap on the maximum wage that can be paid to any person in any one year."

Millions of low-income workers, the measure’s lead sponsor, MP Paddy Tipping, told the House of Commons Wednesday, have benefited from the British minimum wage.

"We need to complete the policy circle," Tipping urged, "and seriously consider the introduction of a maximum wage."

A maximum wage set at ten times the minimum, the former social worker observed, "would give a maximum wage of £120,000," the equivalent of close to $200,000.

Whatever the specific ratio, Tipping noted, the effect would be profound.

"It is clear," he explained, "that one of the consequences of a maximum wage policy would be that if the top bosses and chief executives wanted to increase their pay, they would have to increase the pay of everyone who worked in the company."

The MPs behind the Tipping proposal are hoping the bill’s introduction will stimulate a broader national debate.

"We need to be clear that voters abhor greed and injustice," Tipping summed up last week in his House of Commons remarks. "There is a crisis in the economic system, and a matching crisis in our political system, and reform is necessary and urgent."

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

Originally posted to Sam Pizzigati on Sun Jun 07, 2009 at 04:55 PM PDT.

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Comment Preferences

  •  The power elite claims that... (2+ / 0-)
    Recommended by:
    marykk, renzo capetti

    the remuneration of CEOs is required because of their vast responsibilities.   Let's compare it to a four star general, or the chief of staff.  

    It's asset value and employees is greater than any corporation, and the decisions have world shaking consequences.

    Salary compared to average employee, lets say a corporal.  I guess it's 12 times as high.  Compared to 344 times for private corporations.

    Yet we manage to get pretty competent generals, and colonels (forget whether you would choose the profession)

  •  We need mare arguments like this to (1+ / 0-)
    Recommended by:

    shut up those that call everything socialism. This arguably actually is socialism and I like it thoough think maybe it should only kick in when unemployment reaches a certain level or the upper level could be pegged at 20 or 30 times the minimum wage giving the rich an incentive to see that go up.

    We have only just begun and none too soon.

    by global citizen on Sun Jun 07, 2009 at 05:07:19 PM PDT

  •  Not going to change anything but perception, imo. (0+ / 0-)

    "that one of the consequences of a maximum wage policy would be that if the top bosses and chief executives wanted to increase their pay, they would have to increase the pay of everyone who worked in the company."

    I like the idea of this as a company policy, but don't know that it should be a legal regulation. I favor the idea of regulating companies to stay under a beta. Much like the stock beta figure, it indicates risk - and disallowing companies from doing things too risky doesn't cap their potential for growth and earning, but ensures that they don't wildly jeopardize the lives of everyone in the company for a few top dogs.

    Naturally, this corporate practice beta doesn't really exist yet, but I don't think attacking salary is the solution to risky behavior which caused this mess.

    Let me know if I should clarify.

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