Mitbestimmung. It’s trickier to pronounce than my tongue-twister surname. But this German word is one Australians should learn as we navigate the complex policy challenges of 2017. The national economic outlook remains weak. Full-time jobs disappear daily in favour of casual and part-time work. Wages growth is stagnant, yet everyday Australians face rising cost of living pressures – childcare, housing, energy prices and health insurance.
It is no surprise that many Australians expressed outrage at recent reports of Australia Post CEO Ahmed Fahour’s taxpayer-funded remuneration and the ham-fisted attempts to conceal – and later defend – his $5.6m paypacket.
Prime minister Malcolm Turnbull warned against a “cult of excessive CEO remuneration”; his friend Fahour should “take a pay cut”. Even right-of-centre Herald-Sun columnist Rita Panahi slammed such “exorbitant salaries”.
Fahour’s salary is plainly excessive. AusPost’s revenue is A$6.5bn. Its American counterpart US Postal Service amounts to A$90bn. Yet the latter pays its CEO A$543,000 – less than a tenth of Fahour’s pay, which represents a sixth of AusPost’s net profit, $36.4m in 2016, down from $281m in 2012.
Amid ongoing redundancies, he scarcely warrants a $1.2m bonus. But Fahour is not alone. Between 1993 and 2009 the average pay of a top-100 CEO tripled from $1m to $3m, twice as fast as that of everyday workers. This trend declined only marginally since the onset of the GFC.
In the context of the mining industry downturn, it is difficult to justify Mineral Resources CEO Chris Ellison taking home nearly $3m – a 287% increase on last year. At least it was disclosed, unlike the attempt to conceal Fahour’s loot or other millionaire executives. Full credit to Liberal senator James Paterson for securing the details of Fahour’s package.
Fahour’s pay is not just unfair, nor can it be vacuously dismissed as “class warfare”. All the evidence shows that Australia’s anaemic post-GFC recovery is being hampered by rising inequality and social immobility, putting a brake on growth and productivity. It’s not an especially left-wing view, but one promulgated by free market bodies such as the IMF and World Bank.
What’s to be done? Former Goldman Sachs managing director Malcolm Turnbull is wrong to suggest this is merely a matter for AusPost’s independent board. Our “two-strike” rule giving shareholders the right to vote for or against executive remuneration packages has not worked perfectly. Shareholder pressure cannot solely restrain salaries that don’t align with performance or lack transparency.
In the UK, mooted change includes requiring companies to publish “pay ratios” revealing how much more top executives receive than average workers. In the US, the Dodd–Frank “Wall Street Reforms” make it mandatory for most public companies revealing pay ratios, although they may be gutted by President Donald Trump. Turnbull once advocated for binding shareholder votes on executive pay, something the UK has in place.
Self-regulation is dead. Outside pressure is not enough. Legislative pay caps aren’t right either. There’s another way which deserves to be put at the heart of our national conversation: Mitbestimmung, or co-determination, where employees have the right to vote for their own representatives to a company’s board of directors.
Most countries with co-determination laws have single-tier board of directors enshrined in corporate law (such as France and Scandinavian nations), while Germany boasts two-tier boards, whereby employees hold seats on a supervisory committee and sometimes management boards. German co-determination applies to companies with over 500 employees granting them one-third representation and just under half for those with 2000, including the right to approve CEO remuneration.
It works as intended. Employees on company boards ensures a fairer distribution of profits, preventing scandals such as the Fahour example. It means management gets a better sense of what actually works on the shopfloor. Directors are drawn from a wider social and professional circle. It promotes consensus, longer-term decision-making, making for better-paid, more productive and safer workplaces, reducing strikes, and improving the transparency of information such as salaries, all of which benefits investors, workers and consumers.
This is not Kumbaya economics, but a pro-business and pro-worker model that puts power directly in people’s hands, not that of politicians or big business. Better governance helps companies make better strategic decisions, and in the process benefits the overall economy.
It’s not some socialist quackery either – it underwrites Europe’s most successful capitalist economy. Germany has the highest level of workforce participation in its governance, the greatest degree of regulation of labour market entry through vocational training and the most severe constraints on capital in its banking system, but is also the most competitive in Europe, as well as its most dynamic and resilient, and its society more egalitarian and democratic.
Whereas Australian manufacturing lies in tatters, Germany’s manufacturers have made it the world’s third-largest exporter. Co-determination and other “social market” measures such as work councils are supported by both sides of politics and the populace. They were legislated for by a conservative Christian Democratic government in the early 1950s. Conservative UK prime minister Theresa May successfully campaigned for her party’s leadership in July 2016 by pledging “not just consumers represented on company boards, but workers as well”, although she has since backtracked on those plans.
Australian co-determination could help fix a pay gap that has gone too far, and more besides. It can help us grapple with the opportunities and challenges presented by the unfolding technological revolution and a new machine age of robotics and automation. It might transform a business culture defined by short-termism, low productivity and shoddy productive investment.
It is a new consensus politics led by everyday Australians – a means of building a policy settlement in the manner of our post-second world war bipartisanship and modernising Accord years of the Hawke-Keating Labor governments which provided for 25 years of uninterrupted economic growth.
We have a form of co-determination in place: it’s called superannuation, where employee representatives sit on superfund boards, which have built one of the largest pools of savings in the world in just a quarter of a century. (Co-determination of pensions by business and labour is also a feature of the German model). Importantly, it has the potential to tackle growing inequality at its source and combat ugly right and left-wing populism.
Australians deserve a modern, thriving and diverse economy that creates and sustains well-paid, secured jobs in a globalised world. The best means of doing so in 2017 and onwards is by drawing on the Australian way – a dynamic market economy underpinned by our fair go ethos. But it’s also time to look overseas to refresh our priceless national heritage.
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