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Executive Remuneration in Australia

Author

Listed:
  • Productivity Commission

Abstract

A catalyst for this inquiry was concern that executive pay had got out of hand. This perception was fuelled by practices in financial institutions abroad that were seen as a key contributor to the global financial crisis. Further, while local shareholder value plummeted in 2008 as a result of that imported crisis — with some companies and sectors being propped up by taxpayers — executive pay seemed to emerge unscathed, crystallising a view that executives were being rewarded for failure (after having been rewarded for success). This has come on top of longstanding community discomfort about the widening gap between the remuneration of executives and other employees, as well as some large termination payments with perceived lack of justification. Public opinion polling over the years consistently shows that most respondents believe executives to be overpaid. But polls also reveal limited awareness of the drivers of executive pay and wealth creation. Accordingly, this inquiry was tasked with ascertaining what has actually happened to executive pay in Australia’s publicly-listed companies, as well as identifying what can and should be done about it. The appropriate test for any policy intervention is that it promotes community wellbeing: hence the Commission has explored the likely drivers of executive pay and the economic implications of current pay levels and structures. Ultimately, judgment must be exercised, particularly in relation to the magnitude of identified problems and the case for intervention, taking into account both the potential costs and benefits. The Commission's final recommendations constitute an integrated package of reforms that would strengthen board decision-making on executive remuneration, by reducing board 'clubbiness', removing potential for conflicts of interest and enhancing accountability for pay outcomes. Shareholders would get better information and would have more 'say on pay'.

Suggested Citation

  • Productivity Commission, 2009. "Executive Remuneration in Australia," Inquiry Reports, Productivity Commission, Government of Australia, number 49.
  • Handle: RePEc:ris:prodir:49
    Note: 520 pages
    as

    Download full text from publisher

    File URL: http://www.pc.gov.au/__data/assets/pdf_file/0008/93590/executive-remuneration-report.pdf
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    File URL: http://www.pc.gov.au/projects/inquiry/executive-remuneration/report
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    Citations

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    Cited by:

    1. Martin Bugeja & Stephanie Fohn & Zoltan Matolcsy & Neil Fargher, 2016. "Determinants of the levels and changes in non-executive director compensation," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(3), pages 627-667, September.
    2. repec:bla:abacus:v:52:y:2016:i:4:p:619-684 is not listed on IDEAS
    3. Michaela Rankin, 2010. "Structure and Level of Remuneration Across the Top Executive Team," Australian Accounting Review, CPA Australia, vol. 20(3), pages 241-255, September.

    More about this item

    Keywords

    executive remuneration; termination benefits; remuneration packages; equity-based payments;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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