The high salaries and low morals of corporate Australia
Is it right that foreign employees of an Australian company get paid Third World wages while foreign managers of the same company get paid first-world salaries?
Do we still believe in the principle of equal pay for equal work? Or is it a case of George Orwell’s famous line in his novel Animal Farm to the effect that we are all equal but some are more equal than others?
All good questions as Australian companies are increasingly shifting operations offshore. We are told that Australian wages and salaries are too high and that moving offshore will “save” the company money by cutting labour costs.
That sounds simple doesn’t it? Yes, it does if you are a CEO of an Australian company that is under constant pressure to continually show record profits year after year. The pressure to show a strong increase on the previous year’s profit is relentless. Record profits drive increases in a company’s share price and increases in share prices drive increases in a CEO’s salary and performance bonuses.
A failure to show record profits means that the share price takes a hit and that leads to lower performance bonuses being received by management. So the pressure to show record profits becomes a personal challenge for any CEO wanting to collect higher performance bonuses.
The only problem is that showing record profits year after year is a very real business challenge. It is especially challenging in a marketplace full of efficient and hungry competitors where the ability to raise prices to consumers is constrained.
Real and aggressive competition between a diversity of efficient competitors makes it hard to raise prices to consumers and that makes it hard to show record profits and even harder to secure those much sought after performance bonuses. That’s why company CEOs have an irresistible urge to pursue mergers or acquisitions and that’s why we need effective competition laws to stop mergers and acquisitions that undermine the competitive fabric of a particular market.
Mergers and acquisitions are a very simple way for company CEOs to knock out efficient competitors so as to secure higher consumer prices, record profits and increased performance bonuses. Fewer competitors mean fewer competitive pressures to innovate or deliver lower prices across the full product range.
Let’s not forget that the ultimate purpose of real and aggressive competition is to push down prices and deliver wider product choices to consumers. Mergers and acquisitions reduce product choice and reduce diversity in the market. More dangerously, they lead to higher consumer prices and allow the remaining players to act as a cosy club for their general mutual benefit.
Yes, there is an appearance of competition in the cosy club, but not in a way that seriously jeopardises the mutual interest of their CEOs to show record profits to keep pushing up share prices so as to secure those performance bonuses.
Now, there is nothing wrong with rewarding CEOs with performance bonuses. There‘s only a problem when those performance bonuses skew the behaviour of the CEO towards short term goals or undermine the company brand.
That’s where it’s important that the benchmarks for a performance bonus primarily reflect customer satisfaction. In fact, customer satisfaction should be the number one criteria. After all, a company is in business to satisfy customers and if the CEO isn’t fully satisfying customers then there’s something fundamentally wrong with the company’s business model.
Customer satisfaction needs to be front and centre, and should be closely followed by employee satisfaction. Inevitably, customer satisfaction is closely linked to employee satisfaction for the very simple reason that it’s those employees that are at the coal face dealing with customers.
Unhappy employees can lead to unhappy customers. That’s why it’s important to have a close look at the way employees are treated in terms of wages and salaries and whether there is equal pay for equal work. This is especially important with Australian based companies having overseas operations.
Take Qantas, for example. Here we have a company with substantial Australian operations, but with a growing overseas-based operation especially in Asia. Qantas is an iconic Australian brand that has always received considerable benefits from being the dominant domestic carrier.
Long the beneficiary of a local duopoly, first with Ansett and now Virgin Australia, Qantas consistently enjoys healthy domestic profits. Obviously, the more concentrated the particular market the healthier the profits of the dominant players tend to be and the higher the prices generally faced by consumers.
Qantas also enjoys considerable benefits such as high level political access and access to premium terminal facilities at Australian airports. And Qantas has always been good at the political game something that’s helped by the invitation it extends to all Members of Parliament to its very exclusive Chairman’s lounge.
Despite all these advantages, Qantas’ healthy domestic profits are not matched on its overseas operations. Why? Quite simply because on international routes Qantas faces real and aggressive competition which means that on those routes consumers get much better access to lower prices and wider product choices.
Clearly, Qantas is struggling financially on those international operations. So what is Qantas doing about it? Well, by cutting the pay and working conditions of foreign based pilots and crews. This means that different workers employed by Qantas and its related airlines such as Jetstar will get different rates of pay for the same work depending on where they are employed. So much for the principle of equal pay for equal work!
So much also for employee satisfaction. How do you think different classes of employees would feel? What happens to customer service when pay is reduced or staff levels cut? Low morale and staff cuts lead to reduced customer service which then leads to low customer satisfaction. What do you think that does to the brand?
Employee morale is not helped when the CEO and managers get significant increases in their remuneration package. And what about the salaries of overseas managers employed by Qantas to run the company here? Well, it appears that while Qantas wants to pay overseas workers less for the same job performed in Australia, Qantas is happy to pay its imported management the substantial salaries and performance bonuses that are paid in developed countries.
Apologists for substantial executive salaries will say that you need to pay the higher salaries to management to attract the best talent. Well, on that logic don’t you need to pay higher salaries to attract the best and most experienced pilots, cabin crew and engineering staff?
So maybe at Qantas all staff members are equal, but some are more equal than others. Just remember that when you next get on a Qantas plane that you want the best and most experienced pilots, cabin crew and engineers and that Qantas management and the rest of us should always be nice to the pilots and crew because when that plane takes off we are in the pilots’ and crew’s hands with management nowhere to be seen.
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