- Exclusive
- National
- Executive pay
How much more do CEOs earn than you? Most Australians get it wrong
By Matt Wade
If the size of CEO pay packets already annoys you, this information will make you even madder.
It turns out Australians dramatically underestimate the wage difference between our highest-paid executives and regular wage earners.
A new study shows the average chief executive officer of companies listed on the Australian stock exchange earns more than 100 times as much as the average full-time worker – but people think they earn just seven times as much.
Christopher Hoy, a University of Melbourne research fellow and co-author of the study, said it was “just crazy” how much people misjudge the scale of CEO pay packets relative to the rest of us.
“When asked what the average CEO earns, most people are astronomically off the mark,” he said.
“There is a genuine misunderstanding of just how widespread wage inequality is.”
When respondents were asked what pay gap they would prefer between the average CEO and average full-time worker, they said only three times as much. If that preference came to pass in Australia, some executives would take a pay cut in the tens of millions.
A report by the Australia Council of Superannuation Investors found that Victor Herrero, former boss of jewellery chain Lovisa, took home a handy $39.6 million last year, making him the best-paid CEO in Australia. Macquarie Bank boss Shemara Wikramanayake was next on $29.8 million.
The study also found strong support for higher taxes on very high income-earners and for greater redistribution to disadvantaged households.
Australians are not the only ones who think CEO salaries are unwarranted – the study found similar results in France, Sweden, Japan, Britain and the US.
“The vast majority of people have a similar view: that wage inequality is far too high, and the richest people should be taxed more,” said Hoy.
The study shows Australian CEOs are well remunerated compared to several counterparts in Asia and Europe. While the average CEO here gets 100 times more than the average full-time worker, that ratio was 83 times in Sweden, 63 times in France and 59 times in Japan.
But CEOs do much better in Britain, where average CEO pay packets are 214 times bigger than the average worker’s, and in the US (269 times).
The study used a global CEO pay index collated by Bloomberg to compare the average total remuneration for chief executives of publicly listed companies to average full-time earnings across countries.
Hoy said the findings had implications for tax policy debate in Australia because it revealed most voters did not have a good understanding of how unevenly wages were distributed.
“People don’t realise how extreme wage inequality is, but we have a tax system designed around what people think is the case, not the reality,” he said.
If voters were better informed, it might result in much more political pressure to lift taxes on very high-income earners.
“CEOs are clearly getting paid far beyond what people think is socially acceptable, particularly for the current rates of taxation,” he said.
Hoy’s study also found voters with far-right political views become much more supportive of higher taxes on the wealthy and greater social spending for disadvantaged households when they are informed about the true scale of wage disparity.
“Actual information about wage inequality closes the gap between people on the far right and people on the far left when it comes to support for redistribution,” Hoy said.
Polling by the Australia Institute think tank in 2018 found 80 per cent believed CEOs are paid too much; only 9 per cent said they are paid the right amount and 2 per cent said they are paid too little. The poll also showed strong support for limiting how much a company can pay a CEO.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.