Editorial - Closing the income gulf

18:04, Oct 18 2012

News of hefty salary increases for some state-sector chief executives was reported to have engendered feelings of outrage in some quarters. That's not surprising.

Consider the job (and pay rise) of John Allen, chief executive of the Foreign Affairs and Trade Ministry. He has headed a highly controversial cost-cutting restructuring at MFAT where dozens of jobs have been lost, entitlements for some diplomats cut and embassies closed. His pay has risen $40,000 to $620,000-$629,999

Labour's foreign affairs spokesman, Phil Goff, denounced this as a blatant double standard. A government that was sacking hundreds of staff and cutting their incomes, he argued, should be leading by example and restraining salary increases at the top.

But the widening income gulf between bosses and their workers is even more pronounced in the private sector.

Ryan Wood, a history student at Waikato University, has proposed introducing a maximum wage.

His argument: if the top salary was legally fixed, say, at $200,000 a year, the "economic miracle-workers running companies" would be encouraged to start their own businesses where, as shareholders, "they can indulge in the dividends they deserve". The creation of new companies would lead to more jobs, negating the need for the recently introduced "starting-out" wage.

It's been done before, in a capitalist country. President Franklin Delano Roosevelt issued an executive order during World War II limiting corporate salaries to no more than US$25,000 a year after taxes.

A much less rigid constraint might be considered. An Australian business writer traced the growing mismatch between executive remuneration and performance to the mandatory disclosure of salaries introduced in the early 1990s. Suddenly every executive could see from annual reports what every other executive was earning, spawning a new industry of "remuneration consultants" and triggering a burgeoning of salaries which is still out of control two decades later.

Stop publishing the figures, and the pace of executive pay rises should be tempered. But then we would have nothing to be outraged about.


Waikato Times