Most people think CEOs are grossly overpaid. What can we do about it?

Few things can unite Australians like CEO salaries. Opinion polls have found about 80 per cent of us think corporate bosses are paid too much.

The latest figures on executive remuneration, for 2023-24, show Victor Herrero of jewellery retailer Lovisa Holdings topped the list for CEOs living in Australia. He took home just under $40 million, which means in less than one day Herrero had already banked more money than the average wage earner would take home in the whole year.

While we all know CEOs get fat packets, the truth is we don’t realise just how fat they have become.

A new study co-authored by Melbourne University academic Christopher Hoy highlights the gulf between public perceptions of executive pay and the reality.

The researchers used global CEO pay data from Bloomberg to calculate how the salaries of chief executive officers compared with typical workers. They discovered the average CEO of a company listed on the Australian stock exchange earned more than 100 times the pay of the average full-timer.

Beliefs about CEO salaries were then tested with a survey. It turns out people were way off the mark saying they earned just seven times as much as the average full-timer. When asked how much CEO should earn, respondents report only three times as much.

“CEOs are clearly getting paid far beyond what people think is socially acceptable, particularly for the current rates of taxation,” says Hoy.

But the giant pay gap between top executives and regular workers is relatively recent.

Research by economics professor turned Labor MP Andrew Leigh tracks how CEO pay packets took off during the 1990s as the market for top executives became increasingly globalised.

“We may get better talent as a result, but one of the consequences of doing a worldwide search is that we now pay the global price for CEOs,” he writes in his recently updated book Battlers and Billionaires.

BHP, one of Australia’s oldest and largest companies, illustrates this trend. The firm’s CEO received about 50 times average earnings in the early 1990s, Leigh’s research shows. But that has blown out to around 190 times.

The latest review of CEO pay by the Australia Council of Superannuation Investors (which measures realised earnings) found the current BHP chief, Mike Henry, received $19.3 million in 2023-24, making him the fourth-highest paid executive living in Australia behind Lovisa’s Victor Herrero, Macquarie Bank boss Shemara Wikramanayake ($29.8m) and The Goodman Group’s Greg Goodman ($26.9m).

Hoy’s study of wage inequality draws attention to another dynamic affecting CEO pay in Australia that gets surprisingly little attention – the language we speak.

While the average CEO here received about 100 times more than the average full-timer, that ratio was considerably smaller in both Japan (59 times) and France (63 times) even though those nations have much bigger economies than Australia, and host many large global firms.

But CEOs do much better in the US (where the average CEO earns 269 times the average worker) and in the UK (214 times).

These differences show how the globalisation of executive labour markets since the 1990s has favoured English-speaking CEOs, including Australians.

“If you look at the income share of the top 1 per cent, you’ll see that it’s risen much more steeply in English-speaking countries such as Australia, Canada, New Zealand, the United Kingdom and the United States, than in non-English-speaking countries such as France, Germany, Japan, the Netherlands and Switzerland,” writes Leigh. “If you’re an English-speaking CEO, globalisation just magnified your job options.”

It would be dangerous to pretend the huge pay mismatch between top CEOs and average workers has no consequences. It threatens to weaken trust in business, politics and even democracy.

The share of voters who say the government is run for a “few big interests” jumped from 38 per cent in 2007 to 54 per cent in 2022 according to the respected Australian Electoral Study, which has conducted surveys after each election since the mid-1980s.

The big company boards responsible for setting CEO pay don’t seem to care much about the public’s frustration at their remuneration policies or the way they might undermine trust.

But it turns out federal Labor has already put forward a good policy on CEO pay that would promote greater transparency and much-needed accountability.

In 2018, Leigh, who was then the shadow assistant treasurer, announced Labor would require all listed firms with more than 250 employees to report on the ratio of their CEO pay to the pay of the median employee. Alongside the pay ratio, firms would be “encouraged” to provide a public explanation of the remuneration strategy.

At the time, Leigh claimed this policy would help inform investors as they calculate risks and decide where to invest their money and “address public concern” that CEO salaries are growing at an unfair rate and leaving workers behind.

“Tackling inequality requires measures across the board, including in the boardroom,” he said.

A similar scheme introduced by Britain’s Conservative government has been operating in the UK for the past five years. It aims to increase transparency and boost accountability “at the highest level”.

A review of the policy by British think tank the High Pay Centre found CEO-to-worker pay gaps in the UK had remained stable from 2019 to 2024.

The ALP policy announced by Leigh in 2018 was put on the backburner following its election loss the following year.

But it is time CEO pay received more scrutiny; reviving Labor’s scheme for greater transparency through the publication of pay ratios would be a good start.

Matt Wade is a senior economics writer

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