Wednesday, June 26, 2013
It's off the old scale
The head of BHP gets paid around 200 times as much as the average Australian. Back at the start of the 1980’s it was six or seven times as much.
The stark finding is in new research that uses BHP records dating back to 1887 to plug gaps in what’s known about long-run trends in Australian executive remuneration.
“What we see is a relatively high ratio of BHP CEO salary to Australian earnings at the turn of the 20th century, around 50 times average earnings, slowly dropping throughout the century save for a spike in the second world war,” said Melbourne University economist Mike Pottenger.
“Then with the arrival Paul Anderson as chief executive in 1998 there’s a vertical jump. He was paid more than 200 times average earnings.”
“Anderson was the first internationally-sourced chief executive since the very first, William Patton who was hired for 4000 pounds in 1887.”
“Anderson's successors, Brian Gilbertson, Chip Goodyear, Marius Kloppers and Andrew Mackenzien have all earned around 200 times the average – it has become the new normal.”
Working with BHP historian Geoffrey Blainey and inequality researcher Andrew Leigh who is now a Labor member of parliament Dr Pottenger constructed a range of likely salaries for the years 1887 to 1984 using the few internal memos that mentioned salaries and the known relationship between the chief executive’s salary and BHP directors fees.
From 1987 he used the executive remuneration reported in BHP annual reports and later the total remuneration including stock options and incentives.
“At all times our estimates have been conservative,” Dr Pottenger said...
“If critics want want us to exclude the incentives and options, we happy to point out that without them the CEO’s salary is still 100 times the average - roughly double its previous peak and far higher than anything thought possible during the 1970s and 1980s.”
Data provided by Egan Associates on the average CEO remuneration at Australia's top 100 companies for the last few decades suggests that BHP's experience has been typical.
“In BHP's case the merger with Billiton near the turn of this century made it a truly global company,” Dr Pottenger said. “Also just before the merger there was an air of desperation in the company. Its 1999 annual report was titled 'Under Pressure', the 2000 report was titled 'Coming out of a tight corner'.”
Dr Pottenger said BHP and other newly globalised companies appeared to have succumbed to “Lake Wobegon effect,” named after the fictional town in the US radio show A Prairie Home Companion where “all the women are strong, all the men are good looking, and all the children are above average".
“They all want to hire a chief executive who is better than the global median, ” Dr Pottenger said. “If executive's abilities are distributed along a bell curve, the only way to do that is to bid up salaries.”
“In fact they are no longer going up. Around 200 times average earnings seems to be the new normal. Something else is at work.”
In today's Sydney Morning Herald and Age
. Why we've no idea what we actually earn
. Earn $210,000? You're in the top 1 per cent
. Our rich are getting richer