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Capping bankers’ pay

  • November 10th, 2010

Following exposure to 'Inside Job' I want to know more about how the Australian government plans to cap banker pay.

The Herald reports the proposal, relating it to New Zealander Sir Ralph Norris' $20m pay for leading the CBA.

No politician will risk promoting the one thing that might actually change the  incentives enough to allow boards to do their job as they did when top boss pay was almost never more than 10 times the pay of shop floor workers.

Get rid of the law that requires the publication of executive salaries. Require full disclosure to shareholders of director remumeration (of all kinds, including the full value of options and retirement benefits) but end the compulsory publicity that pitches boards into the stupid ratchet competition of Hay relativity type salary rounds.

I blogged on this topic 18 months ago, when the Aussie salary cap proposal was mooted.

I can confirm, from experience in remuneration decisions on a number of boards, that rational calculation of what is necessary to attract and retain the right talent, is submerged by perceptions of both the candidates or executives, and the boards, of what it might be thought to say about them and their companies if they let themselves fall in the bottom half of the reported distribution.  What was referred to in 'Inside Story' as  the 'pissing competition' is unavoidable.

Try scrapping the silly rule before enacting even sillier rules. 

But there is a ratchet operating in politics too. It is far less risky to promote new law, even if it is to counteract recent silly law, than to propose repealing anything when people are baying for more rules.

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