Why CEO pay cheques should make your blood boil

Are you happy with your monthly or fortnightly pay cheque?

If you’re not, you’re not alone... far from it in fact.

You see official data from the Bureau of Statistics were released last week showing wages growth in Australia at record lows.

Wages are rising fractionally above inflation. At a very basic level it means it’s nigh impossible to get a pay rise, but easier to get a job.

It’s a similar story in both the UK and the US.

Also read: Why bank CEO wages are simply obscene

Employers feel more comfortable offering workers casual and contract positions, or simply lower pay.

The world’s developed economies simply aren’t growing fast enough to offer up anything else.

In fact it’s becoming harder and harder for companies to grow organically and produce big profits in such a subdued economic environment. Cue: tax avoidance.

It’s ironic really considering that’s exactly the sought of thing that can make it harder for economies to ultimately pull out of an economic funk.

Paying tax is for suckers

Last week the managers of some of the world's biggest energy companies were called in front of a Senate committee to justify whether they meet their tax obligations in Australia.

Chevron was front and centre because it recently lost a battle with the Australian Tax Office, but there were some other well-known companies as well like Caltex, Shell, Woodside, Origin, and BP.

Chevron lost an appeal in the Federal Court recently and has been asked to foot a $250 million tax bill. It was also slugged with $60 million in fines.

Chevron's managing director, Roy Krzywosinski, put it down to a disagreement of all things.

He said the Federal Court had a different interpretation of the tax law to Chevron’s finance department.

Also read: ANZ's CEO pay packet closes in on $11m

Labor Senator Sam Dastyari took the guy to task. Here’s a small section of the transcript. It’s entertaining if not slightly disturbing reading:

Roy Krzywosinski: Chevron Australia did not engage in any illegal activity or tax avoidance. In approaching our tax applications, we comply with the letter, the spirit and the intent of the law in line with our stringent global code of business ethics.

Sam Dastyari: What does Chevron Australia Transport Proprietary Limited do?

Roy Krzywosinski: It's our interest in the north-west shelf transportation business.

Sam Dastyari: Why is it owned by a Bermuda company?

Roy Krzywosinski: It's quite common to have transportation activities owned by Bermuda companies.

Sam Dastyari: It's also a very common jurisdiction for tax avoidance and tax minimisation.

It’s not just the big players that are being hauled before law makers. The committee also grilled the ride sharing service, Uber and the accommodation service, Airbnb.

Uber is based in the Netherlands for tax purposes, while Airbnb is based in Ireland.

Both gave ‘interesting’ reasons as to why they weren’t paying the amount of tax one would expect them to be paying.

Uber looks and smells like a taxi service, so that’s how the Tax Office has labelled it for revenue reasons.

But, no, according to Mr Kitschke, it’s a tech company… and that’s it.

Uber is currently fighting the ATO about the application of GST to its drivers, which is being fought out in the Federal Court.

Uber's director of public policy, Brad Kitschke, told the committee the company’s uncomfortable with its dealings with the ATO. I should think it would be!

Uber’s essentially arguing that it "doesn't generate revenue" because of the company's relative infancy. That’s surprising given how upset the taxi industry has been with the ride sharing service.

Nothing justifies the violent attacks directed at Uber drivers recently but why are they so upset if Uber isn’t a financial threat?

Also read: Eight surprisingly high paid Aussie jobs

The ‘who cares’ part

The Federal Budget is in structural deficit.

That means there’s no easy way to bring the budget back to balance, let alone a surplus.

It also means that Australia can’t afford to have a recession, and if we do, it will be twice as hard to recover.

Big companies and small start-ups all need to pay their fair share in tax. Think of each tax haven as a hole in the side of a boat.

The more companies that take advantage of them, the more holes appear in the boat and the quicker it (the economy) sinks when the seas get rough.

Half your luck

I think there’s more pressure on big foreign companies to pay their fair share of tax because the economy isn’t in great shape, which – as I explained above – is also why you’ve got more chance winning the lottery than getting a pay rise at present.

But how’s this for a laugh, if you work for one of the major banks, or indeed any multi-national corporation, you might be surprised to learn how much your boss is earning.

Australia’s CEOs are frankly paid ludicrous salaries.

All the information has been made public with a whole slew of annual general meetings last week and the release of companies’ annual reports.

Before you read more though you might want to have a box of tissues handy. It’s eye-watering … tear-jerking stuff.

Let’s look at the banks first.

ANZ's outgoing chief executive Mike Smith annual pay packet is just under $11 million.

Mr Smith got a pay rise in fiscal 2015, pushing his salary up to $10.8 million, up from $10.4 million last year.

The bank boss got a bonus of $2.05 million.

The release of Westpac's annual report showed details of Gail Kelly's treasure chest. It seems she received $11.8 million in cash payments during her last four months as chief executive.

What do you even do with that amount of money??

The current Westpac boss, Brian Hartzer, has pocketed much less.

The annual report shows Hartzer received $3.69 million in cash payments and $436,856 in share awards.

And the other big stocks on the ASX 200 – the miners? How do those CEOs fair?

The world's largest miner, BHP Billiton, found itself in a bit of an awkward position this year. It’s still dealing with the Somarco mine disaster in Brazil.

The miner’s throwing a whole bunch of money at the affected areas and has apologised over and over again. Still, the damage has been done.

So, back to the pay packet question: Well, CEO Andrew Mackenzie took home $7.968 million in 2014 but this year his salary was knocked down to $4.582 million.

That also may have something to do with the fact that BHP’s share price has fallen over 10 per cent this year to below $20 a share.

Now moving away from the banks and miners, what about a company like Qantas Airways?

Well Qantas Airways chief executive, Alan Joyce, is in the opposite position to Andrew Mackenzie. He's actually turned Qantas’ financial position around – of course it’s got nothing to do with the fall in the oil price (tongue in cheek).

Mr Joyce’s total pay packet has tripled to nearly $12 million over the past year as he reaped the rewards of the swift financial turnaround of the airline and its rising share price.

In fact he received just $4 million a year earlier when the airline reported a record $2.8 billion loss.

His base salary had actually been frozen since 2011 given the airline’s poor performance.

Also read: Australia’s 10 most misunderstood jobs

The logic behind the madness

Understand this and you’re on your way to figuring out what drives some of Australia’s biggest companies: it’s all about the share price.

Whether it’s working out which global city to place your headquarters, or how much to push up your interest rates (if you’re a bank), or what to charge your customers, or how much to hedge your exposure to international markets, if your profit improves (above expectations), your stock price will lift and so will your CEO’s pay packet.

Heck if I had a KPI that was directly linked to my pay packed I’d become myopic as well. What you end up with of course though are very powerful companies that don’t have the collective interest in mind.

That’s great if you’re a part of the chosen few, but that’s about it.

 

David Taylor is a journalist with the ABC. Before taking up a position with the ABC, David was a financial markets analyst and economics commentator. You can follow him on Twitter: @DavidTaylorABC.