An Australian Perspective
Edited by Mohamed Ariff, John H. Farrar and Ahmed M. Khalid
Chapter 11: Executive Remuneration in Australia
Allan Fels 11.1 INTRODUCTION How much did executive pay practices contribute to the global financial crisis? Opinions have tended to be starkly polarized. Some argue that the use of the wrong types of incentives led executives to be blinded by greed and to engage in wholesale irresponsibility, especially in the finance sector. Others argue that volatility is just part of the normal behaviour of markets and that there is no need to throw out market-based rewards. We can still trust self-interest, they say, because at least you know it is trying. Even though some time has elapsed since the worst of the crisis, opinions are still divided. There is a widespread perception that executives have been rewarded for failure or good luck. They received rewards for rises in the share price that had little to do with their contribution to company performance, and instead reflected excesses in asset markets. The criticisms are not unreasonable. If executives are to take the credit on the way up, then they should assume responsibility on the way down. Executives of public companies expect that of their employees, so why should it not be the same for them? For the most part executives are employees, not owners. But answering the criticisms is neither simple nor straightforward. Just because there are good reasons to scrutinize executive rewards does not mean the answers are easy to locate. To assess whether executives are worth the amount of money they are paid requires a leap in the dark. Logically,...
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