Swan's Song on Cutting Executive Salaries

It seems to me that there is no effective way of making politicians salaries performance-based. CEOs can have their salaries/bonuses determined by stock price and other simple financial metrics. Determining the correct operation of a country is not so simple.

http://abs.gov.au/ausstats/abs%40.nsf/Products/1386.0~Jun+2008~Main+Features~Economy?OpenDocument

I suggest instead that politicians salaries be indexed to the median salary. The above URL shows that in 2005 the median income was just over $35K. I think it would be reasonable to set the salary for a back-bencher to be 10% more than the median income for the country (Canberra is an expensive place to live) and to have higher indexed rates for the ministers and the PM.

Hi Craige,

I used to agree with you outright on the idea that politicians salaries being cut. But when we have to worry about politicians' salaries costing the taxpayer more than executive salaries do on everything we buy and pay for, then I'll be advocating politicians just cutting their salaries. If you try to work out how many executive salaries over the Prime Ministers - let's say over $500,000 per year - are in companies that we use every day then it quickly dwarfs any possible comparison to politicians. And these executives are people who vote themselves payrises behind closed doors, with little or no scrutiny, and even (for example in the Telstra case) in direct contradiction to their shareholders' own wishes.

I saw one court case of a senior editor for channel 7 being poached by channel 9 after his pay was cut from $700,000 per year. He claimed in the court case that he couldn't live on $450,000 per year, and while that's a 35% cut in his salary I still find it impossible to imagine the kind of financial rashness that requires more than $450,000 per year to stave off the debt collectors. So I see this as a primary example not only of the kind of divorced-from-reality attitude that these people have - that earning more than the Prime Minister is just simply not enough to survive on - but also that there are far more people earning overinflated salaries in the private sector than there will ever be in the public sector.

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On a related topic, I think that there's a fundamental feedback mechanism that we are encouraged not to think about in these kinds of salaries - that the idea of having to 'be competitive' by offering higher salaries in order to 'hold onto' those executives merely encourages a kind of out-of-control inflation with little or no bearing on either their real contribution to the business or the rest of the employees in the business. This not only acts within companies but also across government and private sectors - politicians salaries are often raised because of the salaries in the private sector, and here in Canberra we often hear that the ACT Government has had to raise its salaries or change conditions to bring them in line with the Federal Government as they compete for the same workers here.

This kind of 'keeping up with the Joneses' is what has caused the financial problems that we're in today, and the fact that it serves as its own justification is the root cause of the problem.

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(I sometimes look at my salary - less by an order of magnitude than the examples I've quoted here - and still think it's contributing to the overall problem. As you say, we should all be asking how we can contribute our money better to our community, rather than pointing the finger and saying "you first" - Wayne Swan or you or I.)