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Productivity commission rules out executive pay caps

Productivity commission rules out executive pay caps

Executive salary caps are not the solution to overinflated pay packages, Australia’s Productivity Commission said today.

Instead, the commission has proposed that two successive negative shareholder votes on pay would result in an immediate board election, with the entire board up for replacement.

Incidences of excessive executive pay scales are the exception rather than the rule amongst Australian companies, a Commission inquiry found.

Executive pay grew by more than 250% in real terms since 1993, the Commission said. But these increases have occurred concurrently with the growth and expanded reach of Australian companies in general, and in any case executive remuneration fell in 2007-2008.

Inquiry chairman Gary Banks acknowledged that there have “been episodes of excess and poor pay practices,” but said that salary caps were not the way forward.

“[Salary caps] would be unworkable and have harmful economic impacts,” he said. “Rather, regulatory and corporate governance reforms are needed to strengthen the integrity of pay-setting by boards.”

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