October 23, 2008 | Graham

Unions have the power to check executive pay

Kevin Rudd has declared war on “extreme capitalism”, by which he mostly seems to mean obscene executive rewards. But you have to ask yourself what the unions have been doing.
One of the consequences of the introduction of compulsory superannuation was the establishment of industry super-funds with significant union representation on their boards. These funds have actually proven to have excellent track records, mostly because they don’t slug their depositors with outrageous management fees. However, when the trend first became apparent there was concern that union muscle would be used to bend commercial interests to the will of the lumpen proletariat.
The proof that this fear was poorly-grounded is apparent in the way executive remuneration has taken off. If the union appointed execs on these funds were going to make a mark anywhere, surely it would be in the case of executive remuneration, yet from what one can see from the outside there has been not a tweet from any of them on the subject. Why is this so?
I asked an executive from one of the industry funds this the other day. His explanation was in some respects a commercial version of Stockholm Syndrome. Once you get to run one of these funds you become a member of the club, and it is socially very hard to look someone in the eye when you’ve just been responsible for denying them a multi-muilion dollar pay rise. Besides, if your career trajectory holds true, you may well be in their position in a few years time, and you wouldn’t want to set a precedent.
In the modern world, unions, it would seem, are like every other large organisation – a conductor for upward social mobility; a way for working class men and women to join the privileged classes. You get the rewards by meeting your clients needs, but not to the extent where that prejudices your own bright future.
Kevin Rudd can jawbone companies about excessive pay, and even introduce some regulations, but it’s likely executives will find a way around those restrictions. A better course might be to ring the ACTU and get some counter-active social pressure operating on their representatives in the managed funds industry.

Posted by Graham at 9:17 am | Comments (4) |
Filed under: Economics


  1. Graham,
    A minor point; as I understand it Peer pressure and self interest are very different to ‘Stockholm syndrome’
    I suspect that the executive in question was simply in self interest self justification mode and as such the argument isn’t that convincing.
    Notwithstanding the above and having experienced ‘the club’ mentality all that I do understand how difficult it would be career- wise to be one out.
    I have no doubt that it is the ’rising damp’ of short term perspective and greed that has and will continue to pervert Corporate Capitalism to our detriment.
    It is also interesting to note that in recent history banks were closing branches wholesale on the grounds of unprofitability (?) (executive decisions) the short term savings made the executive massive bonuses.
    Now the next generation are opening up branches (executive bonuses for business growth?)
    On the interview last night on “7.30 report” the commentator made the point that recent losses have taken away more than the risky strategies have gained. Yet golden parachutes have saved the executives.
    While I understand the concept of market adjustment what concerns me is that it is the public is asked to pick up the damage caused by the intervening disconnect.
    You are right in pointing out that union super funds could make a difference but I do believe that it will take Legislative force to bring this ‘herd’ to heal.
    Consequently I have difficulty having much sympathy for executives or their “monkeys and peanuts” argument. It’s a simply a matter of incorrect species determination. I favour the analogy “if you have heaps on offer you get marauding elephants instead ”.(Anything that gets in way of a herd of stampeding Bull elephants and their feeding better have good firepower.). 🙁

    Comment by examinator ant — October 23, 2008 @ 1:02 pm

  2. yes i am a former union trusttee and there is much talk of reining in executive salaries and putting pressure on at AGMs; but it is not happening , due to institutional pressures…and unions do not run these super funds.
    I addressed the more fundamental strategy that of the question of Socially Responsible
    Investment, SRI, often called ethical investment together with Corporate Social
    Responsibility, CSR.
    SRI is superannuation fund investing in socially responsible companies.
    I put up my 2004 argument on my new blog
    See also on this blog other analysis of the world capitalist financial crisis heading into a depression and also
    I reproduce Humphrey McQueen labour historian on greed.

    Comment by Chris White — October 24, 2008 @ 9:19 am

  3. Applying the same reasoning would see top footballers not being paid $30m to play for a team.
    They get paid that because they generate much more than their salaries. Most of them are head hunted and offered these salaries, they are not in the position to demand it without having proven they are worth it.

    Comment by Jeff — November 1, 2008 @ 7:21 pm

  4. Interesting analogy the ‘Stockholm syndrome’ argument but as someone else points out – incorrect application. With SS there is intense fear for one’s life, and to use it in this context is to trivialise the experiences of people who have had their lives at risk ie hostages, abused kids/wives/people.
    Occupational socialisation is the concept sought.
    I have noticed an increase in the use of overly dramatic language to – what? explain/rationalise one’s own actions;to seek forgiveness on some level? understanding? whatever – it is self indulgent I think.
    On another note – 40 years ago when I worked on the factory floors we were given bonuses at Xmas. this cut out in the late 60’s/early 70’s if I remember correctly. Everyone looked forward to them and we knew it was linked to production so worked harder to achieve the bonus. Someone, somewhere made a decision to stop doing this – it just takes another decision to reverse it. Stop paying the big bosses money because they actually dont do too much in real life – pay the people who are actually doing the work.

    Comment by Lynn Thomas — November 2, 2008 @ 6:16 am

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