Put a cap on eye-popping incomes

It's the first day of spring and time to take a fresh look at the world.

To resolve the serious problem outlined in my previous blog we should be pushing the Government to legislate a maximum income alongside regulations setting the minimum wage.

There can be little doubt the salaries and bonuses of senior company executives (and some public sector CEOs) are out of control. Everywhere in the world there is frustration at the seeming impotence of governments to deal with the naked greed of these corporate types and the boards who set their salaries and bonuses.

Over the past week the main criticism of high salaries and eye-popping bonuses for our chief executives here has been that bonuses have been paid in full despite drops in profit for the companies concerned.

Telecom CEO Paul Reynolds's total income package of $5 million included full payout of his bonus despite a 44% drop in profit. A similar story applies to Air New Zealand CEO Rob Fyfe, who was similarly rewarded with all his bonus despite falling revenue and company profits.

In their defence these companies explain that their bonuses this year were unrelated to income or profit levels. Instead they were designed around reorganising and reorienting their businesses. This sounds fine but what it really means is that these senior staff have renegotiated their bonus structures to "recession-proof" their incomes. So while companies are asking staff to accept no pay increases or even cuts in pay, and are citing falls in revenue and profits as the reasons, the same senior staff are smirking all the way to the bank.

Interestingly, many company shareholders are deeply disturbed at what they see as corporate largesse at the highest levels in many companies. Senior staff have been described as behaving like "de-facto owners" of the businesses they work for as they serve themselves handsomely at the expense of workers and shareholders. But the real losers are always the workers whose work creates the income for the companies in the first place.

Employees of Telecom and Air New Zealand are good examples. Telecom is trying to force maintenance workers to become independent contractors, which will result in lower pay and poorer conditions of work. The savings will go to shareholders and senior executives. Similarly Air New Zealand workers have also suffered redundancies and poorer conditions of employment forced on the workers through numerous restructuring exercises.

The problem for low-paid workers on the minimum wage is the same as that which drives corporate incomes. In both cases markets have failed to value the work in an honest, humane manner. Intervention is needed at both ends.

So where should the appropriate maximum income be set? Paul Reynolds's obscene $5 million income is close to 200 times the minimum wage. My pick would be to set the maximum income at 10 times the minimum wage. This would mean a maximum income of $250,000. The easiest way to enforce this would be setting a 100 per cent income tax rate for the combined income from all sources (including share allocations, allowances etc) above this level.

Linking the maximum salary to the minimum wage would have the added advantage of providing an incentive for the highest paid to lobby for increases in the minimum wage, unlike the present situation where the corporate sector argue for the lowest minimum wage possible.

And please don't tell me we need high incomes in these positions. We may need higher incomes to attract the likes of Paul Reynolds but why would we want him? There are any number of senior Telecom staff who could take over the Telecom CEO's job and do it just as well for 5 per cent ($250,000) of Reynolds's income.

There will also be the argument that New Zealand will lose its best and brightest overseas but this has no foundation. People come to or remain in New Zealand for a host of reasons beyond the narrow attractions of cash. The benefits of an incomes cap accrue to us all. There is now robust research to clearly show that the prevalence of social problems decreases dramatically in countries with lower income inequality. We all end up with better lives.

I think increasingly people see the emptiness of the capitalist doctrine - "the winner is the one who dies with the most toys" - for what it is.

Let's give the opportunity to those who see service as their primary motivation.