Daily Lesson from Life 27 February 2009

"Fri, Feb 27, 2009 AFP

SYDNEY - THE Australian government on Friday criticised ''sickening' executive salaries after a company which sacked 1,850 people was accused of tripling the pay of its chief executive.

Clothing manufacturer Pacific Brands paid CEO Sue Morphet A$1.9 million (S$1.88 million) last year, sharply up from the A$686,000 she received in 2007, media reported. The company said Ms Morphet's pay increase was the result of a promotion from divisional general manager to chief executive, but politicians jumped on the story to attack top pay packages.

The Greens party announced it would move legislation in parliament to cap salaries at a million dollars. Finance Minister Lindsay Tanner said Australia had a 'serious problem with excessive executive pay and payouts' and the government was committed to 'push back in the other direction'.


The idea of capping executive pay has gained popular support around the world as the collapse of the financial
sector plunges economies into recession.


In Australia, the chief executive of telecom giant Telstra, Sol Trujillo, also came under fire from unions for pocketing a A$3 million bonus when he stepped down on Thursday after axing 10,000 jobs in four years.

Australia's unemployment rate hit a two-and-a-half-year high of 4.8 per cent in January and the government has forecast the jobless rate to hit 5.0 per cent by June as the global economic downturn bites."

This is a very emotional issue for the ordinary workers who got retrenched while the people responsible for their retrenchment get rewarded with big fat pay! It is also very convenient to accuse the richly rewarded people for being sickening! In fact, downright immoral!!

BUT, if we believe in the capitalist system that some people will defend with their lives, then there is NOTHING immoral or sickening about these fat cats' big rewards. Why is the capitalist society turning socialist now?

Lessons for me are:

1. things are NOT that simple! For me, when you reward the executives, their payout must be split into the fixed salary and variable bonus components. The Fixed Salary can be packed to 10x the lowest paid employee in the company while the variable bonus can be packed to X% of the Net Profit After Tax made in the last 3 financial years (with probably increasing weightage to the most recent year. Say, 45, 35, 20) subject to the approval of shareholders!;

2. this will demonstrate the socialist nature of the compensation package in the fixed salary portion while the variable portion keeps the capitalist nature of rewarding the most successful more! The approval of shareholders are sought as they are the ultimate owners of the company!;

3. the mechanic of the reward package aside, there is a need to address the integrity and morality issue. Unless the executives can prove or show that the massive retrenchment is taken as a last resort after exhausting ALL possible cost cutting measures, that will include executives' perks; travel expenses; discretionary expenses; forced leave or vacation; shorter week week; etc, were taken. Otherwise, the executives will be accused of being immoral and sickening, and rightly so!!

This issue will need many leaders to reconsider the morality of reward packages. It will require the leaders to ask themselves what kind of package will they consider equitable when they are getting the bonuses on the basis of retrenching thousands of fellow workers!