Mahatma Ghandi said the true measure of any society is its treatment of its most vulnerable members. Others say inequality is the measure of fairness in society. The massive levels of inequality in modern capitalist societies reflect badly by any measure. Egalitarian New Zealand is a myth.
Poverty was talked up as a big issue in the recent general election, and rightfully so. UNICEF say almost 300,000 New Zealand children are living under the poverty line. Many of them are from families where one or both parents are in employment. Those not employed are forced to literally live on the breadline.
Last week the media featured the story of Lynlie Beazley, “the face of poverty in New Zealand”. After her fixed costs are met, Lynlie has just $22 a week to live on. That’s enough to buy her two bottles of milk, two loaves of bread and a tray of eggs to last the week. Otherwise she relies on food parcels from the Salvation Army, smokes other people’s discarded cigarette butts, wears discarded clothes, the shoes of the homeless. It’s been two years since Lynlie has been able to afford fresh fruit. Lynlie was one of more than 10,555 individuals the Salvation Army supported with food parcels between April and June this year alone.
Researchers such as Phillipa Howden-Chapman, Professor of Public Health at the University of Otago, say the most pronounced indicator of social inequality in NZ is growth in income inequality. Income disparity is driving disparity in social and health outcomes. People living in poverty have reduced life expectancy, fewer life chances than their wealthier counterparts, they’re forced to scrimp on food, on trips to the doctor, they’re more likely to live in cold and damp housing. According to Treasury 30% of households with dependents earned less than the living wage, currently $20.20ph. When the minimum wage is $15.75 an hour, or $630 for a 40 hour working week, and not enough to live on, poverty is regulated for by the state.
But if Lynlie Beazley, an unemployed, brown woman, is the face of poverty, at the extreme opposite end of the spectrum is Theo Spierings, an icon of obscene earning. As CEO of NZ dairy giant Fonterra, Mr Spierings this year has received a 78.5% pay rise on last year, bringing his total remuneration package to $8.3million. That’s $16,000 per week or more than $1 a second. He gets paid 200 times the pay of Fonterra’s lowest paid workers.
Spierings’ astronomical pay and pay rise leads to questions about value for money for the cooperative dairy company’s shareholders, as well as the nature of income inequality in modern capitalist society. Dr Lynley Tulloch observes that Spierings’ “humungous salary seems incongruous with recent stories of farmer debt, suicide and struggle”. Fonterra’s full year profit was $100million less than in the previous year, in 2015 more than 700 staff were laid off, butter prices rose 11% in August this year to a record high of $5.39 a block. Basic Fonterra commodities like milk and butter are unaffordable to the working and unemployed poor. Agricultural debt has risen over $60billion in the last few years, externalised costs on receiving environments and animal welfare go unmet. How sustainable can Spierings’ pay rate be?
But while Spierings’ pay is incongruous with the plaintive cries we hear about ‘poor farmers’ any time there’s a low global dairy return, and even though he is the highest paid CEO in the country, the scale of his pay isn’t out of keeping with other corporate CEOs here and overseas.
The average pay for CEOs in NZ is over $1million. The 2015 average NZ worker’s income on the other hand, was $57,117. Five other Fonterra staff ‘earn’ more than $1million per annum. 200 earn $500,000 to a $1million. SkyCity’s Chief Executive Nigel Morrison earns $6.4million a year. Fletcher Buildings’ Mark Adamson took home $4.7million until he was unusually sacked for poor performance. The Chief Executive of The Warehouse, Nick Grayson earns $1.4million per annum in his standard salary, and took home an addition of $700,000. Grayson makes more in two weeks what a shop floor worker makes in a year.
There’s no evidence that these CEOs are worth that much more than the floor level workers. I’ve never understood why people doing the worst jobs are also paid the lowest wages. The cleaner’s role is no less important than the manager’s. Economist Max Rashbrooke observes that CEOs are paid considerably more than they were a generation ago, but it’s not proven that they’re more effective. According to international studies, there’s no link between high pay for CEOs and company performance. Professor Tim Hazeldine of the University of Auckland, agrees that growth in remuneration is unrelated to the growth of the company.
Excessive pay rates for CEOs in particular, are justified by ‘international benchmarking’ against comparable Australasian and international companies. “Independent” remuneration advisors help shape wage rates and rises, but grouping pay rates into quartiles and deciles tends to become inflationary, creating a natural wage ‘escalator’ effect, knocking rates up ever higher. The International Labour Organisation’s Global Wage Report 2016/17 says that in most countries, salary bands exhibit a gradual climb across the deciles, until the top ranges where there’s a big jump, especially to the top 1%.
The authors of the report looking at wage inequality in the workplace, found that some wage inequality reflects worker’s individual and productive characteristics, but wage inequality also reflects gender, enterprise size, type of contract and sector. It’s no coincidence that there are fewer women and people of colour the higher up the salary and power ladder you go. On average, men have the highest salaries overall.
Rising CEO wages and growing wage inequality are proof that the promised trickle down of wealth in a growing economy fails to occur. More accurately, wealth rushes up. The pay packets of NZ’s largest company CEOs grew three times that of general workers. ‘Closing the Gap’, a NZ based income equality project, says that CEO pay has risen by 85% in recent decades, compared with 13.5% for regular employees.
Helen Roberts, accounting lecturer at the University of Otago says CEOs earn 15 times the typical worker’s pay. But it’s not just in the private sector that obscene pay rates and income disparity apply either. State sector bosses earn at least five times the pay of regular employees.
Though not of the dizzying heights of the private sector, the chief of the NZ Superannuation Fund was paid $950,000, the CEO of ACC was paid $810,000, of the State Services Commission, $760,000, and so on.
The highest paid employee at the Auckland District Health Board, earned over $1.5million, compared with registered nurses who earn between $22 and $32 an hour, or maximum $69,000 per annum.
Bryan Bruce also makes the point about growing disparity between other members of the public sector, namely parliamentarians and public servants. This year, new and returning MPs are due for a pay rise on previous rates. The Prime Minister’s new pay rate is $471,049 per annum or $9058 a week. The leader of the opposition will take home $296,007 a year, or almost $6000 a week. Backbenchers will be paid $163,961 a year. Bryan Bruce compares this with the top pay scale for teachers at $78,000 per annum, whereas back in 1979, backbenchers and teachers were paid the same.
Add to these injustices, the pay rates for sports(men). Kiwi Steven Adams has a projected income of $35million for playing basketball. Scott Dixon, Indy Car driver, earned $11million last year. Dan Carter is paid $2.7million for playing rugby. Some All Blacks are now earning $1million a year.
Public opinion surveys have found that up to 72% of New Zealanders believe wealth is deserved and legitimate. Even excessive wealth is seen as derived from individual talent and benefits, “people deserve the massive pay they receive because they’ve earned it”. Max Rashbrooke says we’ve become more tolerant of inequality. He says acceptance of inequality is a cultural phenomenon. He refers to Japan where the CEOs of huge companies would never be paid the sort of excesses paid here.
But in the face of Theo Spierings’ latest pay rise, some within New Zealand society, including farmers, expressed concern. Winston Peters called for ‘Say on Pay’ rules so shareholders get input to management pay rates. ‘Say on Pay’ schemes overseas have led to greater transparency – apparently the CEO of BP had his pay rate cut by 40% as a result. In Portland, Oregon, publicly traded companies are required to pay a surtax when CEOs earn more than 100 times the median of company workers. Higher tax rates for higher salaries can also contribute to the redistribution of disproportionate pay. But even though the minimum pay rate is as low as is tolerable, and still it’s not enough to live on, there’s never any real momentum behind reining in obscene pay excesses with a maximum pay rate at the other extreme.
Felicity Caird from the NZ Institute of Directors Governance Leadership Centre, warns that excessive pay “…can erode public trust and confidence”. Britain’s High Pay Commission warns that pay inequality “undermines employee motivation, damages public trust, widens the gap between the haves and have nots, and leads to political instability”. British Prime Minister Theresa May says “peoples’ faith in capitalism is at stake”. Here, Professional Director Michael Stiassny, says the corporate world has a responsibility to ensure corporate excesses don’t occur. “We must come to a debate about what’s fair remuneration for CEOs compared with the minimum wage paid to workers”. “There will need to be some rebalancing” to avoid widespread marginalisation, manifest in reactions like Brexit and the election of Donald Trump. Pay excesses have got so extreme that even the legitimacy of capitalism is in question.
So despite the myth of egalitarian New Zealand, income inequality perpetuates gender, race and class exclusion. In a world of scarce resources, extremes of wealth and poverty are two sides of the same coin. The rich get richer and the poor walk in homeless peoples’ shoes.