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Pay, Perks and Power Laws

By Ian MacDougall
Created 28/04/2007 - 10:14

Ian MacDougall is a long-time Webdiarist and occasional, highly valued contributor. His last contribution was Justice, punishment and revenge [0].

by Ian MacDougall

 

1. PAY

 “For all of us.” – JW Howard, 1996.

That was the slogan John Howard used in the 1996 campaign that swept the Keating Government out of office. Now I hate to be the one who has to tell you this, but evidence is accumulating that he was less than sincere.

The latest comes in the form of a leaked, publicly funded report (which the government refuses to make public) on the operation of its industrial relations laws; those with the Orwellian label of WorkChoices. According to the ABC website [1], figures collected by the Office of the Employment Advocate (OEA) show that 45% of the Australian Workplace Agreements (AWAs) have stripped away all of the award conditions the government had promised would be safe under new WorkChoices arrangements, and may breach the law itself.

By law, AWAs are not allowed to undercut five minimum conditions: the minimum award wage, annual leave, personal leave, compassionate leave and parental leave. According to the leaked report, one or more of these conditions have been left out of the vast majority of agreements examined. These have included shift loadings (removed in 76 per cent of agreements), annual leave loading (59 per cent), incentive payments and bonuses (70 per cent) and public holidays (22.5 per cent). Note however, that base pay has not been attacked in the same manner: 78 percent of the 3972 agreements analysed reportedly have wage rates more generous than the relevant award minimums, and another 16 percent had wage rates equal to the award minimum.

Yet also bear in mind what Peter Martin said in his article Where now for Workchoices? (Canberra Times , April 21): “[A Bureau of Statistics] survey finds that across Australia, non-managerial employeees on AWAs get 9 percent more than those on collective agreements. But to earn this, they typically work 13 percent more hours.” Even worse, in the ACT, “workers on AWAs earn 9 percent more than others. When managerial employees are included (virtually everyone senior in the Commonwealth is on an AWA), the earnings gap in the ACT rises to a mind-boggling 50 per cent.”

The big end of town is looking after the big end of town. It also looks after the other end of town, but in a different way. In the absence of public release of the OEA report, we are left with two choices: either Mark Twain was right when he said “there are lies, damn lies, and statistics”, or John Howard missed his vocation. He could have made a fortune to rival the House of Saud, either out of the old shell game, or the 3 card trick.

With polls indicating that the Howard Government is likely to lose the next election, Workplace Relations Minister Joe Hockey has been doing his best at damage control. Explaining it all away is not the easiest task, particularly given his refusal to make the report public.

The AWA scheme was brought in by the government against the opposition of the ALP and the unions. It was one issue perpetuating the traditional divide in Australian politics, otherwise hard to find since the election of the Hawke government in 1983.

The ALP has traditionally been a social justice party, with a membership in favour of the reduction of inequalities. The conservative side of politics has viewed the inequalities and the class divide as only right and proper, and the product of hard work and enterprise on the part of conservatives. Its economic philosophy has centred on maximising freedom of capital while minimising that of organised labour, and leaving redistribution of wealth as far as possible to the trickle-down effect, and its wider expression in trickle-down economics [2]. It has never had a good word to say for the trade unions, other than those with strong historic connections to the Liberal Party: professional guilds such as the AMA.

In 1996, without making any move against traditional conservative philosophy, John Howard chose that collectivist slogan ‘For all of us,’ for his election campaign against the Keating ALP government. As subsequent economic trends have widened the income divide, it would have been more honestly expressed as ‘For some of us’. (But it did have its humorous sequel. [3])

In the same campaign, Paul Keating created the ALP’s uncharacteristic one-word individualist slogan out of his personal obsession: Leadership. Those two slogans could soon after be combined to form a description of the outcome: a majority of all of us voted to dump His Leadership.

Those bizarre slogans summed the campaign up well. If it had run along more traditional lines, the 1996 election would have pitted Coalition individualism against ALP collectivism, but the Hawke-Keating government John Howard sought to defeat was one which had introduced a whole raft of measures to deregulate and globalise the Australian economy. Howard accused Keating of “pinching” those policies from the Coalition. They have led to the export of many jobs, particularly in the manufacturing sector, and have been a key factor in the decline of the unions, the traditional base of the ALP. Union decline has been matched by steeply rising income differentials, and there is probably a link there. 

So marked has been the decline in ideological difference between the major parties that subsequent ALP leaders up to Kevin Rudd have had hard work differentiating their party from the Coalition. Thus the Latham-Howard contest in 2004 degenerated into a vote-buying auction based on spending promises, with Latham’s populist attack on politicians’ retirement benefits (his own not included) being quickly conceded to him by Howard.

One wonders why it is not possible for the major parties to simply share the spoils and merge. That this is never even mooted forces us to the conclusion that some tectonic force way down in the bedrock of Australian society prevents it happening. A grand ecumenical merger of the ALP, Liberals and Nationals into one big coalition would not be blocked by any serious philosophical or policy differences, so it seems that the diverse interests behind the two parties would not countenance it. The parliaments of the nation will always contain at least two major factions perpetually at war with one another.

Perhaps the two great formations elected to do parliamentary contest every four years represent the two sides in Marx’s class war. Or perhaps a brawl between two less acknowledged, but just as real social groups: the givers and the takers, otherwise perceived as the self-deniers and the self-indulgers, or the altruistics and the greedies.

Then again, maybe it springs from a different divide in social categories; quietly embedded in the present commotion over WorkChoices.

We may begin by noting that Workplace Relations Minister Joe Hockey says AWAs are a must, and a marvellous invention for all of us. So in this looming environment of ‘freely negotiated’ workplace agreements, we might look at more than the issue of how the money income of say, a factory worker on an AWA, is determined. We should also compare that determining process with the one found up at the big end of town: the one that decides the incomes of the highest paid employees like executives and chief executives, and though they would deny it, elected parliamentary representatives like Joe Hockey.

Let us consider politicians like Hockey first.

2. PERKS

Between Federation and the Whitlam government (1972-75), politicians used to set their own salaries and other benefits by their own parliamentary vote. That practice attracted widespread resentment and criticism, but had bipartisan parliamentary support. The Whitlam government ended it, or at least, gave the appearance of having done so. The result is that many now believe that Joe Hockey’s income and package is set by the totally independent Remuneration Tribunal, [4] though I doubt Joe Hockey himself does. Nor for that matter, does the Tribunal.

What it says is this:

The Remuneration Tribunal Act 1973 (the Act) provides the Tribunal with the power to determine a range of allowances and entitlements for Senators and Members of the Federal Parliament, including Ministers (sub-sections 7(1), 7(2) and 7(4)). However, the Tribunal does not determine the entire range of provisions that are made for Federal parliamentarians. Other relevant pieces of legislation include the Ministers of State Act 1952, the Parliamentary Entitlements Act 1990, the Remuneration and Allowances Act 1990 (the R&A Act), the Members of Parliament (Life Gold Pass) Act 2002, the Members of Parliament (Staff) Act 1984, the Parliamentary Contributory Superannuation Act 1948 and the Parliamentary Superannuation Act 2004.

In other words, politicians pay and perquisites (perks) have been like the additions to a much-extended house, with odd rooms and verandahs cobbled on from time to time as the need was felt. The Tribunal does not have the power to determine the base pay (currently $118,950 per year) of parliamentarians. The Cabinet does that. (“The Remuneration Tribunal does not have the power to determine Federal parliamentarians’ base pay. The base parliamentary salary is governed by the R&A Act (sub-clause 1(2) of Schedule 3) and is a matter for Government decision. Sub-section 5(2C) of the The Act and sub-clause 1(3) of Schedule 3 of the R&A Act specify that the Tribunal’s role is to provide advice to the Government.”( *)  [5] Joe Hockey gets that parliamentarians’ base pay, but as a Cabinet Minister he also qualifies for an extra percentage of that base pay, and that percentage [6] is determined directly by the Tribunal. It currently stands as a ‘loading’ if you like of 72.5 percent of base salary: another $86,238, making the total Joe Hockey salary (not package) $205,188.75 per annum in all.

Now the total package, including perks: The Tribunal also determines allowances, the major ones being “the travelling allowance rates and travel-related provisions (eg travel on scheduled domestic flights, car transport, private plated vehicle, charter allowance and overseas study travel), electorate allowance, qualifying periods for Life Gold Pass, severance travel (for those not qualifying for Life Gold Pass), and certain office facilities.” Translation: the taxpayer picks up the tab for domestic first class air travel for serving and retired backbenchers and ministers, unlimited international travel for serving and retired ministers, limited international travel for backbenchers, the cost of government propaganda directed at the very same taxpayer to help secure re-election, and electorate support for all MPs. The taxpayer also provides the MP with a car and fuel card, heavily subsidises the food and beverages the MP orders in the Parliamentary Dining Room, and in the case of the Prime Minister, pays for the entire cost of catering and staff in his two official residences. Alan Ramsey’s calculation [7]published on July 9, 2003, is that all up, the PM costs the taxpayers $10 million per year. Paul Raffaele [8], a journalist who testifies to the difficulty of fact-finding in this area, would verify that. (More here [9]; scroll down).

All of this is on the principle that the further forward the politician is in the pecking order of the parliamentary benches, the greater the value of the benefit. John Howard, like Paul Keating before him, will qualify for unlimited domestic and first class international travel for self and spouse/friend, plus costs of establishing and staffing a private office from which to do private business (in Keating’s case, around $620,000 on leaving Parliament), plus Commonwealth car and driver. To set all that up via a private super fund would require an investment of millions.

The political sensitivity of both government and opposition on the subject is shown by the alacrity with which John Howard conceded victory to Mark Latham in the latter’s populist assault on the politicians’ superannuation scheme in 2004. He made no attempt to defend that scheme before the electorate. It also helps explain why he was as quiet as a mouse in restoring it after Latham’s defeat, and why finding information on it is such a challenge. As that section of the Parliamentary Library [10] website devoted to it says: “Parliamentarians' benefits are complex and merit more detailed discussion than is possible here.” Anyone who takes the trouble to fight their way through the jungle of text, tables and links on that site will find out how true that statement is, and perhaps may wonder why it has to be so. (For example, what has actually been paid out for travel by present and retired politicians is buried in Senate Estimates reports.) As a rule of thumb: if they don’t like it public, it’s because the public don’t like it.

The politicians can vote to disallow any or all Tribunal determinations that they find sufficiently insufferable. In fact they can get rid of the Tribunal altogether, as it has no constitutional foundation. But it would be surprising if they did so, not least because the Tribunal is required to review parliamentarians’ allowances at least annually, and has never pruned them back.

Parliamentary superannuation can be accessed as soon as the politician leaves Parliament. For more details, get in touch with Bill O’Chee [11], who left Parliament in 1998 at the age of 33 with an indexed pension for life of $45,000 (1998 dollars) per year, not including perks. It is paid out of Consolidated Revenue, not from a super-fund subject to the volatilities of the share market, and O’Chee did no waiting around to turn 65.

Executive pay in the private sector is a different bird, but of the same feather. In 1976, according to this source [12], chief executive officers (CEOs) were paid three times the average wage. By 2002 the average CEO, taking executive share options and bonuses into account, was paid 30 times the average wage. This gulf is still widening; Austar executives [13] provide merely the latest example.

3. POWER LAWS


When we see rates of change like these operating in the natural world, we look for the operation of a power law. One such, known as the Law of Gravitation, ensures that a falling body accelerates, making it far more dangerous to fall from the 10th floor of a building than to jump off its front step. We can also look for a positive feedback [14] mechanism, such as that which amplifies the heat of a single discarded match into the raging inferno of a bushfire, or the energy released by a single falling pebble into that of an avalanche. We also have the well-known Snowball Effect. As we seem to have something of a financial avalanche operating today, tumbling exponentially increasing sums into the pockets of the managerial elite, we may ask the common scientific question: What the hell is going on here?

With that question, we find ourselves investigating yet another two important social categories in Australia, separated by the operation of different laws and feedback mechanisms in the determination of their incomes; with one of those categories subject to a power law, or to the multiplying effect of positive feedback, and the other not. Let us leave off at this point calling them classes, because that area is more the province of classical Marxism. Let us instead call them brigades, although there is still considerable overlap with classes.

First, there is the We Help Ourselves brigade (WHO). Collectively, and in the manner of the late-mediaeval European aristocracies, they are in a position to decide how much of the cake of socially-generated wealth they will help themselves to. Most of this brigade is to be found in the corporate sector, interacting there (package determination-wise) with the senior public servants, the judiciary and the politicians. Some small business people qualify for a time as WHOs, such as those publicans with inclinations to drinking the profits. But most of the latter do not stay in the brigade for long.

Then there is the God Help Us brigade (GHU), by which I mean the rest of the population. As their own input to their own incomes’ determination, they have only whatever bargaining skills and leverage they can bring to the negotiations over their personal AWAs. (We leave for another time consideration of the self-employed, with their incomes determined by the markets in which they operate.)

Members of both brigades routinely have their incomes determined by others. The question now is: What feedback effect do those respective We Help Ourselves and God Help Us determinations have on the incomes of those others?

Consider a company negotiator sitting across the table from a member of the GHU brigade in a standard two-sided win-lose contest. The company negotiator will drive the hardest bargain possible, consistent with getting the company what it wants, which is the services of the GHU worker. Company representatives and their supervising executives who drive bargains that are too soft are likely to be invited to seek alternative employment. Witness the alleged reality of the AWAs in the OEA report the government wants kept secret.

But a WHO brigaders’ determinations are really a one-sided contest straight out of Alice in Wonderland. Those sitting across the table from each other are really on the same side of the same table. The incomes of those who determine for the employer are consequent upon, and if you like, a direct function of, the incomes of the WHO brigaders being determined. A company negotiator is an amplifier in feedback, like a fireman paid by the number of fires he puts out. If I am a member of something like the Remuneration Tribunal or a company board (or as we shall see, both), every dollar I add to the pay of the WHO brigader in question sooner or later feeds back to help swell my own income too. It is definitely win-win rather than win-lose.

Unsurprisingly, there is no trade union of executives agitating for the right to oversee such negotiations on behalf of individual members. Clearly, there is no perceived need for one.

Now we may ask, just who or what is the Remuneration Tribunal?

According to its website [15], it has three members. The following quotation is a direct lift from that site. It sets out the people involved, and their curricula vitae:

Mr John Conde AO – President - appointed on 25 June 2003 for five years. Mr Conde was originally appointed as a member of the Remuneration Tribunal on 18 June 1998. Mr Conde is the Chairman of Energy Australia, the Medical Benefits Fund of Australia Limited and PowerTel Limited. Mr Conde is Deputy Chairman of Sydney Symphony Limited and a member of the Grant Samuel Advisory Board.  He also holds positions on the boards of the NSW Corporate Committee of the Australian Olympic Committee, and the Australian Elizabethan Theatre Trust.
Ms Janet Grieve – appointed from 12 April 2005 for five years. Ms Grieve was originally appointed as a member of the Tribunal on 12 April 2000. Ms Grieve is Chairman of Michels Warren Pty Ltd, a Director of Flinders Technologies Pty Ltd, a member of the Information Economy Advisory Board advising the South Australian Government.  Ms Grieve has sat formerly on a number of industry and government boards.
Mr John Allen - appointed 27 August 2003 for five years. Mr Allen is Principal of John Allen & Associates, Chairman of the Australian Government Solicitor Advisory Board and a member of the Council of Leadership Victoria (The Williamson Community Leadership Program). Previously for the Victorian State Government he has sat on a hospital board and chaired a law reform committee.

These people are not a random cross-section of society, as are the juries chosen to decide other quite serious matters, such as the outcomes of murder trials. Different factors are in play. The Tribunal does not consist of say, Mary Smith, hairdresser; Bob Brown, construction worker, and Bert Jones, redundant bank manager. It cannot be surprising if the ethos of the company board is brought to the Tribunal, together with a ‘realist’ attitude towards galloping managerial incomes. Further, if certain company directors are deciding (at least in part) the incomes of politicians as a social layer, what sorts of decisions are the politicians likely to make on matters affecting the incomes of company directors as a social layer? And if a given company’s directors vote high packages to the company’s executives, what sort of feedback effect are those packages going to have on those pertaining to the directors?

Of course, please bear in mind that this is a general question. Whether or not any particular executive package might or might not reflect the actual contribution that executive makes to the collective wealth of the society or the profits of the company is not the topic here; though I am not the first to note that some CEOs have been mightily rewarded for sending profits through the floor. (GeorgeTrumbull [16], former CEO of AMP is but one fine example, and Trevor Flugge [17] of AWB kickbacks fame another.)

Potential for corruption aside, in a nation whose citizens’ worth is commonly expressed in terms of their accumulated capital and annual incomes, it is seen by people of influence as inappropriate for politicians who are lobbied by extravagantly paid company executives, to receive more modest pay themselves. Thus the total remuneration of the politicians goes well beyond their generous enough salaries. Most of their packages are in their pensions and retirement benefits.

It would cost millions for an individual in private business to set up a retirement package equivalent to the one a backbencher qualifies for after a mere two terms in a parliament, never mind Federal Minister Joe Hockey’s. Just as the real cost of running a car is about twice the cost of the petrol, the real cost to the taxpayer of running Joe Hockey is well beyond his present salary, and paid out for the term of his natural life.

To sum up, WHO determinations involve positive feedback: the higher the employee’s package, the higher the determiner’s. GHU determinations involve negative feedback: the lower the employee’s package, the higher the determiner’s.

Politicians tut-tut from time to time about snowballing executive pay, but it is hardly surprising that they never get around to doing anything about it. The WHO ball will keep rolling and growing in Australia as long as there is no mechanism to slow it down; and it is on track to make the nation’s inequalities rival those of Eighteenth Century France.

The more far-sighted recipients of all this largesse are probably concerned about its implications for the nation’s future. But few choose to comment, much less object. (Michael Organ, former Greens MP for Cunningham, has been one of the few MPs ever to attack politicians’ superannuation [18] as a matter of principle.) This leaves most objections coming from the left, and all from the outside of Parliament: those dismissed by the present Prime Minister as involved in “the politics of envy.”

One who can see where this lopsided barge is heading, while at the same time pulling his own strand of its cable, is former Prime Minister Bob Hawke:

“… the real reasons to worry about the explosion of inequality since the 1970's have nothing to do with envy. The fact is that working families aren’t sharing in the economy's growth, and face growing economic insecurity. And there's good reason to believe that a society in which most people can reasonably be considered middle-class is a better society – and more likely to be a functioning democracy – than one in which there are great extremes of wealth and poverty.
Reversing the rise in inequality and economic insecurity won't be easy: the middle-class society we have lost emerged only after the country was shaken by depression and war. But we can make a start by calling attention to the politicians who systematically make things worse in catering to their contributors. Never mind that straw man, the politics of envy. Let's try to do something about the politics of greed."

(Keynote address [19]at the South Australian Council of Social Service (SACOSS) Poverty - it's closer than you think campaign conference, Adelaide, Thursday 28 July 2005.)

In conclusion I remind the reader of the suggestion I made at the outset: the big end of town looks after the big end of town, under AWAs or otherwise. If you are from town’s other end, Mr Howard would have you believe that your tailor-made AWA will look after you, too.

Then again, if you believe that, he might like to hear from you personally. There is a fantastic bridge near his Sydney residence. A very nice earner. He might offer you a great deal. And remember, if he should suggest a game involving three cards, the money card is always where you expect it to be.
 


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