Chief executive pay has become a powerful symbol of the widening gap between the winners and losers created by globalisation, and boards must put more focus on justifying the bonuses they pay executives amid a backlash against free-market policies.
That is the view of the chairman of the Australian Institute of Company Directors, Elizabeth Proust, one of the Australian business leaders attending the powerful World Economic Forum's Davos summit in Switzerland this week.
More BusinessDay Videos
Davos kicks off as Trump era dawns
Anxiety about the uncertainty surrounding the US presidency of Donald Trump is set to dominate discussions at the World Economic Forum in Davos.
The annual meeting of the global economic and political elite, in a town in the Swiss Alps, takes place against a backdrop of growing inequality in many countries, seen as a key driver for anti-establishment political shocks including Brexit and Donald Trump's win.
Ms Proust, one of several Australian business leaders to attend the meeting, said a key focal point for the meeting would probably be the backlash against globalisation, a theme that may have further to run in 2017.
Attending as a representative of the company directors' peak body, Ms Proust also predicted boards would put a keen focus on the total pay packets of senior executives, after some in business had seen getting a bonus as "almost a right".
Bonus backlash
"There's a view that I share that the benefits of globalisation have not been widely shared, and what we've seen in the US, what we've seen in Britain, and we may see in other parts of Europe this year, is a backlash by people," Ms Proust told BusinessDay.
After big companies including Commonwealth Bank [and] AGL Energy last year suffered their first "strikes" votes against executive pay, Ms Proust said remuneration had become a key symbol in the debate.
"My perhaps old-fashioned view is that your base pay is your annual pay and that everything else has to be earned. But I think over more recent times your short-term incentives, STI, has become part of your annual pay, and almost a right, and long-term incentives have been discounted," she said.
![Australian Institute of Company Directors chairman Elizabeth Proust believes executive pay has become emblematic of ...](/web/20170202001717im_/http://www.smh.com.au/content/dam/images/g/n/n/o/q/w/image.related.articleLeadwide.620x349.gtrt4d.png/1484613831150.jpg)
"I think there must be a much sharper focus on what the STI, the bonus, is for, and it must be earned, it must be transparent and I think we'll see a focus on it being clearer and more easily explained to shareholders," said Ms Proust, who also chairs Nestle Australia and Westpac's Bank of Melbourne
"In an environment where the average workers' pay is [rising by] somewhere between three and zero per cent, I don't think it's acceptable to see senior people being paid 10, 20, 30 per cent increases. Or even if they're not actually of that order, that's the appearance of it from the remuneration reports."
![A blanket of snow covers the buildings and trees as the early morning light rises above the mountains in Davos, ...](/web/20170202001717im_/http://www.smh.com.au/content/dam/images/g/t/r/d/x/q/image.related.articleLeadwide.620x349.gtrt4d.png/1484613831150.jpg)
She conceded, however, that many of the people attending Davos benefited from high executive pay, and it was perhaps unlikely to be a key topic of discussion at the forum.
Inequality targeted
However a report by the forum's organisers, the World Economic Forum, has identified economic inequality, social polarisation, and environmental dangers as three key trends over the next ten years. One of the "leadership priorities" nominated by the event's founder is to "reform market capitalism, and to restore the compact between business and society."
In an environment where the average workers' pay is [rising by] somewhere between 3 and zero per cent, I don't think it's acceptable to see senior people being paid 10, 20 30 per cent increases.
Elizabeth Proust
Other senior Australian business figures attending the event include Westpac chief executive Brian Hartzer, the bank's finance chief Peter King, corporate watchdog Greg Medcraft, and it is understood Visy's Anthony Pratt will also be there.
After the government last week pledged an overhaul of politicians' expenses, Finance Minister Mathias Cormann and Trade Minister Steven Ciobo are also listed as attendees.
Attendees from overseas will include China's President Xi Jinping, United Kingdom Prime Minister Theresa May, and founder of Chinese e-commerce giant Alibaba Jack Ma. Mr Trump is not attending.
The Davos meeting is often met with scepticism given its goals and the sheer wealth and power of those attending, and this year has been no exception.
In response, Ms Proust said it was important such events had real outcomes, and she would find a way to bring back ideas and connections that would be valuable for the AICD's members.
"I think that these events only have value and meaning if something useful comes out of it, whether it's at a global level or it's when people go back to their organisations and their countries," Ms Proust said.