Cutting down tall poppy cutters
Australian union leaders grabbed some easy headlines this week as Macquarie CEO Alan Moss retired with a package of over $50 million.
“I don’t think anybody deserves $50 million,” Ms Burrow told ABC radio.
“That’s so far beyond what working Australians can even grasp as reality.
And the conservative columnists joined the procession, explaining that the Alan Mosses of this world are all completely deserving and everyone should stop complaining and get to work trying to emulate his achievements so we can share in the spoils. Asks Janet Albrechtsen:
When will we grow up, put the class envy aside and accept that those responsible for creating wealth for more people should themselves end up wealthy? That way, more people try to create wealth for more people. It’s called incentive.
To those who question whether highly paid CEOs are really worth such enormous amounts of money, Paul Graham put it beautifully in his 2004 essay Mind the Gap:
Editorials about athletes’ or CEOs’ salaries remind me of early Christian writers, arguing from first principles about whether the Earth was round, when they could just walk outside and check. How much someone’s work is worth is not a policy question. It’s something the market already determines.
“Are they really worth 100 of us?” editorialists ask. Depends on what you mean by worth. If you mean worth in the sense of what people will pay for their skills, the answer is yes, apparently.
Graham’s point in this essay was that whereas it’s generally assumed - even by many committed capitalists - that a widening gap between rich and poor is inherently undesirable, in modern economies it is more likely to be an indicator of a good thing; specifically, that technology and liberty has provided leverage that will allow wealth to be generated at a faster rate, inevitably leading to a widening gap between the most productive creators of wealth, and the least. He points out however, that in practical terms, thanks to this increased productivity, everyone benefits, and the lifestyles of the rich and the not-so-rich are actually becoming more similar.
But whilst both Albrechtsen and Graham are both technically correct, neither acknowledges the important role the perception of fairness plays in the proper functioning of the economy.
In his 2004 book The Wisdom of Crowds, James Surowiecki described the 2003 case of New York Stock Exchange chairman Dick Grasso, who was awarded a compensation package of $140 million, which sparked such a public outcry that Grasso was forced to step down. But Surowiecki suggested that this type of controversy goes beyond human notions of fairness. He related it to a 2003 Emory University study of capuchin monkeys (yes, really), in which the monkeys were trained to use a form of currency to “pay” for food. The study found that the monkeys were willing to participate in the currency system as long as they perceived it as fair, but as soon as one monkey saw another receiving better food for the same payment, they would throw a violent tantrum and refuse to participate any further. Surowiecki suggested that the outcry we’ve come to expect on news of astronomical payouts to corporate executives is a natural reaction rooted in a very basic, primitive sense of what is “fair”.
If this is true, no amount of berating from the Albrechtsens of the world will persuade the public to look on approvingly at such payouts. On the contrary, if human reactions are anything like those of the capuchin monkeys, there’s a risk that where people see such huge payouts as unjust, participation in the economy may decline, leading to overall economic activity diminishing.
I find that the general public is quite discriminating in its reaction to the rewards appropriated to various corporate players. In particular, people see a distinction between the self-made entrepreneur and the board-appointed CEO. You don’t often hear anyone complain about the wealth of people like Lindsay Fox, Gerry Harvey, Frank Lowy or Kerry Stokes. The same goes for offshore squillionaires like Sir Richard Branson or the Google guys. Whether it’s because they founded companies that provide products and services that delight us and enrich our lives, or they do a good job convincing us that they’re likable, decent philanthropic folk, or that we know that they all came from humble backgrounds and built their wealth through hard work and inspired decisions, no one seems to mind that they’re so much more wealthy than the rest of us.
Yet when we see someone like Alan Moss raking in piles of cash, it seems quite different. We think “he just works for a bank!”. “He just turns up to work in a suit, signs a few contracts to build a new freeway or airport then goes home… how can that be so much harder than my job? How does he deserve $50 million for that?”. And I think particularly in the case of companies like Macquarie, we get that sense that rising to the top is as much about who you know or which private school you went to than how competent you are - no matter how untrue that may actually be. As such, any suggestion that these huge rewards are available to anyone with the right intellect and work ethic is a little insulting.
So whilst I have little time for Sharron Burrow and the ACTU trying to justify their existence with such predictable ranting, I think it’s important to remember how important the general perception of fairness is to the overall health of the economy. Whilst Macquarie can no doubt justify Moss’s package in commercial terms and would get no protest from me, they risk the country’s economic performance when they fail to acknowledge public standards.
The public doesn’t object to someone earning truckloads of money so long as you can show you’ve earned it.
Tags: janet albrechtsen, paul graham