The news that companies including CSL and Optus, which pay no company tax in Australia, have awarded massive bonuses to their chief executives raises a question. If their tax returns are to be believed, these companies are making losses. So why do their CEOs deserve a bonus?
That’s the obvious question. But there are plenty more to ask – not just about bonuses but about privatisation.
Let’s start with bonuses, which are payments made on top of the already huge salaries awarded to CEOs and other senior managers. The idea, supposedly, is that when the company does well, or badly, the managers should share in the gains – or losses. As the Optus and CSL examples show, however, this commonly works only one way. (See also: Qantas, Bupa and G8 Education).
It might be thought that the variability of bonuses means that senior managers are being rewarded for taking risk. In reality, however, analysis of CEO pay suggests that the combined value of CEO salaries and bonuses varies by about 15-17% from year to year in normal conditions and 22-35% in volatile conditions. That’s very similar to the 22% variation estimated for average UK households in a 2000 LSE study. Low income and younger households face even more risk. And economic insecurity has increased globally since this study was undertaken.
And unlike most households, senior managers face no real downside risk beyond the possibility of missing out on a bonus. Even those dismissed for incompetence or misconduct usually receive a hefty payout.
Now to privatisation. In the 1990s we were promised the payoff from selling off assets would be economic dynamism and a “productivity miracle”. But growth in most measures of productivity stalled around the turn of the century, and has stagnated since then. The great majority of our productivity growth since 2000 has been imported, in the form of advances in information technology. And if there is any economic dynamism around, it is far from evident.
Both CSL and Optus are products of this era, built on what were once public enterprises. CSL, the former Commonwealth Serum Laboratories, was sold for a song. With the proceeds of this public largesse, CSL embarked on a course of growth by acquisition that has continued to the present day, becoming one of the largest companies in Australia.
Optus was artificially created as a competitor for the publicly owned Telecom Australia (later privatised as Telstra), a process that included the acquisition of our satellite service Aussat. Optus remains in public ownership, but the majority owner is now the government of Singapore, which does not feel any obligations to Australian workers and consumers.
The rationale for this exercise was the claim that public enterprises were inefficient, cosseted their employees, and gave poor service to the public. All this was to be fixed by introducing competition in consumer markets through deregulation and financial market discipline through privatisation. The cult of the CEO and the idea that companies had no obligations except to promote shareholder value were a part of this process and contributed to the rise of “bonus culture”.
The newly privatised businesses certainly didn’t cosset their rank and file employees.But the number and remuneration of senior managers grew markedly. As for consumer services, it’s striking how regularly the former public enterprises appear in lists of our most hated companies.
It is easy to feel helpless about all this. Hardly anyone now believes in the promises of neoliberal reform, including the myth that CEO bonuses lead to better or more efficient companies, and yet they remain a huge driver of inequality.
But in various small ways including the gradual reversal of privatisation, and worker resistance to demands for a “return to the office”, the idea that CEOs and financial markets are our natural rulers is being resisted. Sooner or later, we will find our way back into the light.
John Quiggin is a professor at the University of Queensland’s school of economics
