The Federal Government’s limp response to the Productivity Commission’s executive remuneration report could cost the equities market $34.7 billion as investors shift to bricks-and-mortar and cash, according to a superannuation expert.
“The mums and dads of Australia are not stupid,” said Erik Mather (pictured), managing director of Regnan. “Company executives are being paid as if they are entrepreneurs, but at the end of the day, they are often just glorified labour in existing franchises.”
“We’re not calling for executives’ pay to be reduced, but we are saying there must be symmetry between risk and reward, and so executives should be paid in salary and equities, with less emphasis on cash bonuses,” Mather says.
In this way, executives would be forced to think about the downstream risks in four to five years, rather than just looking at the next quarter’s profits.
Regnan is owned by eight instos: ARIA, BT Investment Management, Hermes (UK), HESTA Super, NSW Local Government Super, Vanguard, VicSuper, and Victorian Funds Management Corp.
Regnan’s analysis of APRA data shows that $34.7 billion of contributions from super investors in the 2008-09 year would generate $1.15 billion in dividends. “The $34.7 billion is at risk if ordinary Australians divert their super into cash, and bricks-and-mortar, rather than equities which are the most productive part of capitalism,” Mather said.
“The Government’s response has failed to accept the Productivity Commission’s recommendation that cessation of employment be removed as a trigger for taxation of equity or right.
“Investors will continue to hold exposure to risks associated with an executive’s decisions long after the executive has taken cash the left the company,” he said.