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Commission targets executive salaries -

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ELEANOR HALL: The global financial crisis may not have hit the Australian economy as badly as the
Government feared but the financial reforms that flow from it could still put a serious dent in the
pay packets of high-flying business executives, some of whom earn more than $20 million a year.

The Government has signalled that it wants to take action to curb executive salaries, and the
Productivity Commission has just released its draft report on the issue in Canberra.

Our reporter Emma Griffiths has been at the launch and she joins us now.

Emma, what was the commission's brief and what has it come up with?

EMMA GRIFFITHS: Eleanor, the commission says that the catalyst for the inquiry was very much the
concern that executive pay had got out of hand, but its job was to step back from that sometimes
emotional debate and the heat of the issue and look at it with a cool, independent head.

So the first thing it's done is some research, it's come up with some interesting findings on
exactly what Australian executives are paid and we'll start at the small end of town, if you like.
CEOs at the smallest 500 Australian companies earn an average of $180,000, but up at the other end,
at the big end of town, the Productivity Commission has found the top 20 CEOs in Australia earn an
average of $10 million, or 150 times weekly earnings for the average person.

So here's the chairman Gary Banks speaking at this morning's launch about this.

GARY BANKS: In a nutshell, our research confirms a strong increase in executive pay and
considerable widening of the gap between CEOs and the average worker since the early 1990s. This
has had much to do with the strong growth and increasingly global reach of Australian companies
themselves, which have placed a premium on getting the best executives, and this has been reflected
in a major shift to performance pay.

But we've also seen signs of excessive and poorly designed remuneration that have threatened to
weaken public confidence in the corporate sector and could impact adversely on equity markets.

ELEANOR HALL: That's Gary Banks, the chairman of the Productivity Commission releasing that report
this morning.

Emma, he mentioned that there's been an increase in executive pay over the last decade or so. What
is the commission recommending that the Federal Government do about this?

EMMA GRIFFITHS: It found a strong case for government action Eleanor, and it's made 15
recommendations it wants the Government to look at. Importantly, it doesn't recommend that the
Government should in any way legislate to cap or limit executive salaries because it says that
could in fact harm the economy.

But it's recommendations broadly would give shareholders more say, it would ensure that boards work
according to the wishes of shareholders and that the actual pay packets of CEOs are more clearly
set out so that shareholders know exactly what those bosses are being paid.

A key recommendation is for a two strikes and you're out policy for boards, and here's Gary Banks
again explaining how that could work.

GARY BANKS: In effect we're advocating a two strikes policy. If a remuneration report is rejected
by 25 per cent of eligible shareholders, the board would need to explain at the next AGM what
actions it has taken in response. That's the first strike. But if there's a further sizeable
no-vote at that meeting, a second strike, then the board must face re-election.

In combination with our other proposals this all adds up to a powerful package of reforms that
would strengthen corporate governance, make boards function more effectively on shareholders'
behalf and give shareholders a more informed and influential say on pay.

ELEANOR HALL: That's Gary Banks, the Productivity Commission chairman.

Emma, is the Government giving anything away at this stage about how it's likely to respond?

EMMA GRIFFITHS: Not much. The Financial Services Minister Chris Bowen is responding today from the
Government but he's not giving any concrete yes or no reactions to the recommendations.

He's noted that the report is broadly in line with some of the things the Government's already
doing, for instance, it's got legislation before Parliament that limit the so-called "golden
parachute" payments. When executives leave a company those laws would limit that to one year's
salary. And on that two-strikes-and-you're-out recommendation, Mr Bowen has simply described that
as "bold".

So the Government now has a pretty good idea of where the commission, of what the commission thinks
should happen, where it's heading. Its final report will be out in December and after that the
focus will turn fully to the Government to see exactly what it's going to do about this Eleanor.

ELEANOR HALL: Emma Griffiths, our reporter in Canberra, thank you.