(article by Greg Brogan)

Productivity Decline

Extract:

Executive Remuneration

And the Productivity Decline

1.         Company Performance and National Productivity

The Managers of Australia’s companies are in the business of improving performance. As we’ve seen during and in the aftermath of the GFC, Managers will recognise the underlying value of the pre-existing workforce and will tend not to look at retrenchment as a viable method of cost reduction. This means they must seek to improve performance by more sophisticated means – innovation, revenue enhancement, non-labour efficiencies, etc. In the event that they achieve performance improvement, their Boards and shareholders have shown a willingness to reward them and the workforce for doing so. In this sense, there is a very important connection between performance based pay and performance improvement at the level of the corporation. At the level of the Nation, what is even more important is that there is a very real connection between performance improvement at the corporate level and the productivity of the country.

A recent Treasury Paper on the subject of National Productivity concludes that:

“Ultimately, improvements in productivity come from the decisions of thousands of firms in many industries in developing and adopting new products and processes and changing management, organisation and work arrangements. Thus, the Government can best promote productivity growth by ensuring that the environment in which firms operate facilitates sound decision making……..

Policies that support a stable macroeconomy and a competitive market will ensure that firms are subject to external pressures and market discipline, which provide incentives to perform well and continually search for new products and processes…..” (* p 62)

As we’ve said in previous articles in this publication, the Productivity Commission paper on Executive Remuneration avoided the crucial question of the correlation between Executive Pay and corporate performance. The Productivity Commission argued that meaningful conclusions could not be drawn from analysing the correlation (or lack thereof) between corporate performance improvement and executive remuneration increases while strangely, at the same time, agreeing that performance-based pay was almost singularly responsible for the surge in executive pay over the past decade...