Overblown Management Salaries Not Being Earned

Fonterra's independent inquiry into the botulism scare made 33 recommendations to improve on current practice. One area that was identified was the "lack of senior oversight for crucial decisions". Fonterra's last boss grossed over $40 million over his eight years heading the company and was paid an $8.2 million golden handshake when he finished. 26 Fonterra managers earned over a million dollars each over the previous year and a number of them would have had some part in overseeing the botulism incident and the fact that it was managed so badly is concerning.

It has been very apparent that during the so called recession we have seen a tight reign on wage increases but some spiraling increases for managers and CEOs. The number of high profile company and department heads and well paid boards of governors who have failed to provide the oversight they are paid to do is a regularly reported phenomenon:

• Lesley Longstone, mismanagement of Novopay, increasing class size proposal and the Christchurch school closures (over $400,000 in severance pay).
• Don Elder, Built huge office building for Solid Energy (nicknamed the palace) and oversaw the $300 million collapse of the SOE ($1.3 million annual salary, gardening leave on full pay).
• Tony Marryatt's oversight of crucial areas such as building compliance was found seriously wanting (Salary over half a million a year and a controversial $68,000 pay rise).
• Doug Graham, high profile director of one of many finance companies that misrepresented their financial situation. Lombard Finance accepted $8.5 million in deposits three months before going into liquidation. 
• Ralph Stewart headed the highly dysfunctional ACC where ten employees earned over $500,000 and 29 earned between $200,000 and $400,000 and yet privacy breeches and mismanaged cases happened on a regular basis ($750,000 salary and $100,000 payout)

If managers and CEOs get paid over 40 times what many of their employees earn, and over double that of middle managers, one would expect a high level of oversight and an exceptional level of skill and expertise. This is plainly not the case, these people may actually be very capable but I am sure there would be many who work beneath them who could also do the work if given the opportunity.  

If the pay of our managers and CEOs weren't significantly greater than the average employee there wouldn't be the expectation of superhuman performance and more likely to be shared responsibility of outcomes. Research also shows that if employees are paid well and have the ability to have an input into the management of a business then their productivity tends to be higher. 

I like the idea of a CEOs salary being linked to the lowest wage in the business. If the CEO's salary was always set at 12 times the lowest wage, for instance, then any increase in profitability and productivity would have to be shared. I have difficulty understanding why any CEO should earn more that 12 times the lowest paid employee because even if it was based on the minimum wage it would still be $343,000. 

The last CEO of Fonterra earned $5 million, a salary 174 times greater than the minimum wage...