When I sign the cheques I pay myself what I like.
It’s important we take a moment out of our day today to congratulate Paul O’Malley, the head of BlueScope Steel. In the past year, he received a pay rise of 45 per cent even though the company he leads made a loss of $84 million. For his sterling effort, he raked in $5.1 million. What a guy, huh?
Felicitations are also in order for Ken Brinsden, the managing director of Atlas Iron, the company that made a loss of $245 million but gave the boss a raise of $200,000. There are many others across corporate Australia from a variety of industries who would’ve benefited just as much from such largesse – the reporting season is yet to end.
Contrast those earnings with the entrepreneurs – thousands of them no doubt – still unable to reward themselves with a decent income, forced to face the reality of paying staff more than they pay themselves. And perhaps the harshest truth of all: had they not abandoned their day job years ago to start a business, they too would be doing much better today, at least financially.
Obscene executive income can also be contrasted with the report released earlier this week, which revealed the gender pay gap in Australia is getting worse even in industries dominated by women.
Four years ago, when the problem wasn’t as bad as it is now, I asked several prominent businesswomen for their thoughts on why this occurs. Their responses were diverse. Some placed the blame squarely on the shoulders of men, citing sexual discrimination as the cause. Others blamed themselves, saying they don’t negotiate hard enough and don’t value their own abilities.
Either way, these examples demonstrate the myth of the pay-for-performance structure. It’s a myth because the pay-for-performance equation frequently leaves out the ‘performance’ bit.
In America, for example, the Institute for Policy Studies has just published an analysis of the highest-paid CEOs over the past two decades. You’d think their performance would equate to their million-dollar salaries, sometimes their hundred-million-dollar salaries. Nope. The researchers discovered 40 per cent of the executives ended up being “bailed out, booted, or busted”.
That catchy phrase implies three things. For some, the businesses they led had to be desperately rescued by the taxpayer. Others were sacked for performing badly but were farewelled nonetheless with a gift of several million dollars. And then there were those who were exposed for fraud. For those guys, clearly, big pay cheques just weren’t enough.
In Pay Without Performance, a book written by Lucian Bebchuk and Jesse Fried, the two economists detail the consequences of exorbitant executive salaries. Their intricate research indicates such practices motivate many of the fortunate recipients to misreport results, suppress bad news and withhold transparency. Sure, not everyone does it, but there are sufficient numbers for it to be a concern.
And this isn’t just about senior leaders. The pay-for-performance myth trickles down to even the lowest levels of the organisational hierarchy.
This became evident in one of my own studies conducted several years ago. I surveyed 2400 employees, most of them from Australia, on what angered, upset or frustrated them in the workplace. They weren’t given a list of items to choose from because that method of data collection often skews the results. Instead, they were simply asked to respond with whatever was on their mind.
The most enraging factor – by far – for people at work was ‘lazy and underperforming colleagues’, reflecting the degree to which they hate working with someone who gets paid a similar wage but produces half the output. One of the respondents even commented on the managers in the office who openly brag about their large salaries.
And ominously, but perhaps understandably, there was this from another exasperated respondent: “I am going to burn the place to the ground.”
Do you think executives are overpaid? Or is pay-for-performance a fair method of compensation?
Follow James Adonis on Twitter @jamesadonis