CEO pay rates immoral in an egalitarian society

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The recently announced unprecedented level of CEO salaries should give all conscientious Kiwis cause for concern. The scale of both the base salaries and the increases for New Zealand company bosses shows real inequity, and growing inequality between the pay rates of workers and elites. The growing gap between the rich and the poor is glaringly obvious there. Over the last 10 years CEO salaries have gone up an average of 107%. In the last year alone CEO pay rates rose an average of 10%. At the same time many lower level Kiwi workers received no pay rise at all or had pay rates that were virtually stagnant, with about only a 3% wage increase for Kiwi workers on average.

On the other hand, the CEO of the ANZ bank earned $4.27 million, up $250,000 from the year before. That’s about 120 times the earnings of the bank’s lowest paid employees. The Westpac boss earned $2.89 million last year. Fonterra’s boss had a colossal pay packet of $4.27 million, an increase of $660,000 on the year before. His pay rise alone is worth the earnings of more than a dozen workers on the median wage.

The head of pharmaceutical company Ebos, earned $3.48 million, Sky City, $3.24 million. And if you’re in charge of a power company you’re also sitting pretty – in 2014 Mighty River Power’s boss earned $3.18 million, a rise of 68% on the previous year. Meridian Energy’s CEO earned $1.86 million – a pay rise of 70%. The Contact Energy chief took home $1.58 million, Genesis $1.30 million, TrustPower $1.36 and Vector $1.51.

Within that list there are no women, which should make us question the impartiality, fairness and decency of the system in itself. But what those pay rates and rises reflect is something widely insidious. It reflects a culture that normalises income extremes, justifies excessive remuneration, and celebrates private accumulation of wealth at the expense of a fair society and the public good. This is especially concerning when most of these companies are monopolistic and provide critical financial or infrastructural services on which vulnerable citizens depend.
Those blind to the biases of the meritocracy that concentrates such wealth and reward in the hands of male CEOs might argue that the pay rates and rises earned are warranted, due to the record profits achieved by the companies concerned. But while those CEO salaries rose an average of 107%, their companies’ profits rose a comparatively modest 59%.

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To be sure, the newly (part) privatised power companies have exhibited some exceptional returns. Meridian earned Net Profit After Tax of $117.1 million in the six months to December 2014 and is expected to return $625 million to shareholders over the next five years. Mighty River Power had an End of Year profit to June 2014 of $212 million. Contact Energy recorded a half yearly profit of $257 million, up 17%. These sky high, (usually) record breaking profits are certainly reflected in the high rates of CEO pay. But electricity sector analysts warn about taking simple profit statements at face value – lack of transparency means we are unable to determine how well power companies are actually being run, and the rapid rate of revenue gain and extraction, compared with expenditure raises questions whether assets are even being properly managed and maintained.

While the CEOs of all those power companies were taking home more money than an individual could ever need, more and more New Zealanders are living in power poverty, unable to heat their homes, suffering subsequent health effects. In 2013 more than 40,000 homes had their power cut off due to inability to pay.

In fact people on lower incomes face a double whammy compared with high earning elites. Low income earners already work long hours for poor pay. New Zealand employees on average work the longest hours in the OECD, with 20% of the workforce working more than 50 hours a week, most of them low to middle income earners. At the same time, electricity prices have risen by 46% in real terms since the turn of the century. Power price increases outstrip inflation and push up the cost of living. And because low income earners pay a relatively higher proportion of earnings into energy costs, they’re hit harder than those who earn more.

Those high CEO salaries and dividends to shareholders may not directly come at the cost of social dividends such as warm homes or healthy kids, or for the most vulnerable users being able to afford the security of continuous power supplies. But excessive payments to CEOs while kids die in poorly heated houses are contemptuous of both customers and citizens, and in a supposed egalitarian society that values the welfare of all its members, immoral in the extreme. In a decent society this obvious inequality should be unconscionable to us all.

Disclaimer
Christine Rose is employed as Kauri DieBack Community Co-ordinator by the Auckland Council. All opinions expressed herein are Christine’s own. No opinion or views expressed in this blog or any other media, shall be construed as the opinion of the Council or any other organisation.

6 COMMENTS

  1. Hi Christine Rose,

    When CEO’s earn more than top executives of Government we should all be concerned about what message that sends.

    It sends a clear message that;

    “Business interests are more profitable to the individual than representing the people and the Country?”

    Is this why our Politicians are of less quality than in the past, and is this designed to undermine the quality of Government and the rise of corporate business influence?

  2. An important piece that deserves widespread circulation.

    I hope I’m not picking nits, but may I suggest the following?

    We play THEIR game when we use the word ‘earned’ in the same sentence as $4.7million.
    We play THEIR game when we say ‘meritocracy’, which suggests they deserve it.
    And it leaves us open to charges of inaccuracy if they pay any tax, and thus don’t ‘take home’ the Gross pay.

    • Thanks Tony, I did struggle with the use of ‘earned’, as I certainly don’t see how anyone could ‘earn’ such obscene amounts. For want of a better term, that’s what I stuck with, knowing that astute readers would also probably make that same assessment themselves.

  3. Where a person has created a company or indisputably increased its worth then there is justification for big remuneration packages.
    In the majority of the cases for Public company CEO’s they are not wealth creators, rather they are skilled administrators and corporate politicians.
    Contrary to the cries that these persons are in short supply closer examination suggests they are not, thousands of MBA’s (in truth a Administrator not wealth creator qualification) qualify each year many of whom languish in the middle to lower tiers of management.
    While deserving excellent packages these persons most definitely do not merit salary packages and rigged bonuses (they rarely reflect long term added value) in the millions.
    Unfortunately the remuneration committees, boards and head hunters all have either directly or indirectly have a vested interest in the salary escalations. Unfortunately shareholder are ineffectual as they are often dominated by pension, unit trusts and other forms of funds the managers of which are primarily driven by quarterly returns.

  4. Great work Christine

    Sadly in any neo-liberal dominated free market society (like NZ and other nations in the western world) inequality between rich and poor is guaranteed to grow when we have minimum wages for the working class and unlimited salaries for CEOs.

    The salaries many corporate CEOs receive is totally disgusting, outrageous and unfair compared to other hard working employees many of which work for a minimum wage. This unfair salary gap (within a free market capitalist system) has been one the the many factors that have contributed to the death of egalitarianism in most western societies!

    “Poverty is a man made evil” Nelson Mandela, and these leaders in government and in private enterprise are the facilitators of this evil.

    🙁

    • Aided and abetted by complicit politicians, whose elections seem to be increasingly the result of lies, corporate bias (media), and electoral fraud. They will attempt to ascend to the status of a roaming CEO once they ditch the pretense of “public service”, and we all know who I’m talking about.

      Heartfelt article, Christine.

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