The Agenda – June

Minimum wage review 2015-16 decision

On 31 May 2016 the Fair Work Commission (FWC) lifted the minimum wage by 2.4% from $656.90 a week ($17.29 an hour), to $672.70 a week ($17.70 an hour).

In its decision, which will take effect from the first full pay period on or after 1 July 2016, the FWC Expert Panel states that “the general economic climate is robust, with some continued improvement in productivity and historically low levels of inflation and wages growth.”

The Panel notes that the economy has grown close to trend, improving over the second half of 2015. Real GDP grew by 3% over the year to the December quarter 2015, compared to 2.2% over the year to the December quarter 2014. The headline consumer price index (CPI) rose by 1.3% over the twelve months to the March quarter 2016. The Panel also references stronger labour market conditions and an increase in labour productivity growth, as well as a fall in the unemployment rate from 6.1% in April 2015 to 5.7% in April 2016.

The Australian Council of Trade Unions (ACTU), which had pushed for an additional $30 per week, welcomed the increase but was “disappointed in the missed opportunity to truly narrow the gap between the minimum wage and average earnings”.

“If you take into account the inflation rate it delivers a real wage increase of just over 1 per cent”, said ACTU secretary David Oliver.

In contrast, the Australian Industry Group believes the increase is out of step with record low wage outcomes and very low inflation. Chief executive Innes Willox said the increase will “put upwards pressure on wages … [and] will be a significant impost on businesses at a time when the economic and business environment is difficult, risky and uncertain”.  The Australian Industry Group had sought an increase of $10.50 per week.

Australian Chamber of Commerce and Industry CEO James Pearson warned that the extra costs would discourage many small businesses from hiring extra staff. He also pointed out that newly released Australian Bureau of Statistics (ABS) figures show that profits are down, and that inflation (1.3%) and growth in private sector wages (1.9%) are both below the increase in the minimum wage.

The facts about wages growth

The ABC’s Fact Check division has written an interesting article looking into whether wages growth really is the lowest since records began as claimed by Labor during the election campaign. The organisation spoke to experts, coming to the following conclusions.

Growth is at its lowest level since the collection of Wage Price Index data began in 1997. Male Average Weekly Earnings (AWE) data has been reported for longer, reaching back to the Second World War. Examining this data, the only time AWE was as low as that recorded in 2014-2015 was at the end of the war.

While the Wage Price Index measures changes in wages and salaries where the quality and quantity of labour are kept constant, AWE measures the current value of the average wage, which will change as hours worked rise and fall.

Longer wage series published by academics reveal that there were wage reductions at the end of the 19th century and in the interwar period due to economic slumps.

Yet, workers may be more interested in real wages growth factoring in inflation. In terms of the Wage Price Index, real growth was lower in the financial crisis. Considering AWE, real wages growth has been lower on a number of occasions, including during the Second World War, at the end of the seventies and in the mid eighties.

Improvement in Australia’s global competitiveness

Australia has moved up in global competitiveness, according to the IMD World Competitiveness Yearbook 2016, which compares and ranks countries based on more than 340 business competitiveness criteria. The findings are published annually by the IMD World Competitiveness Center, a research group within the IMD business school.

Australia has changed its rank from 18th to 17th out of 61 economies on the competitiveness scoreboard, below New Zealand (16th) and above the United Kingdom (18th). The shift is due to improvement in factors such as labour regulations, government decision-making and fuel prices.

The Committee for Economic Development of Australia (CEDA) CEO Professor Stephen Martin said of note was Australia moving from being ranked 27th to 12th on economic resilience.

“The mining boom is over, but the slack is being picked up by other sectors, so while our economy is not growing as fast as in the previous decade, we are still growing”, he said.

However, competitiveness has also declined in some areas; notably, information technology skills dropped from 27th to 36th place.

Hong Kong was at the top of the list this year, followed by Switzerland and the United States, which is down from first place in 2015. Professor Arturo Bris, Director of the IMD World Competitiveness Center, said a consistent commitment to a favourable business environment was central to Hong Kong’s rise. The country is a leader in banking and finance, and its competitive tax regime encourages innovation.

US CEO pay trends

Two studies were recently published by US remuneration specialist Equilar on trends in US CEO pay, the first examining the 200 highest paid US CEOs (Equilar 200) and the second examining S&P 500 CEOs. The studies caused confusion in the media, because despite coming from the same source, they appeared to report different results.

The first stated that average CEO pay declined by 15% in 2015, while the second found that median pay had increased by 4.5%. This contradiction is not unusual as not only is the constituent group different for the two studies, but one looks at average and the other at median. Upon closer examination the first study revealed a 5% median increase, bringing the results closer together.

Indeed, a New York Times article argued that the decline in average top CEO pay is not a trend. It suggested that lower average pay was primarily due to last year’s weak share market, which pulled down the value of certain executive pay packages. (The average remuneration package was 69% equity.)

For the first time since 2013, no CEO in the Equilar 200 was awarded more than US$100 million. The highest earning executive was Dara Khosrowshahi of Expedia at US$94.6 million.

Unsurprisingly, some of the highest pay packages were earned in special circumstances. In Mr Khosrowshahi’s case, the 881% increase in his total pay was chiefly due to a new stock option grant. Another standout was Frank Bisignano of First Data, who was the sixth highest paid at US$51.6 million (a 454% increase from 2014) due to IPO retention awards.

In the S&P 500 study, Equilar found that companies were increasingly tying awards to performance and shareholder returns. Around a quarter of CEO awards in the S&P 500 use total shareholder return (TSR) as one of their performance hurdles, which is double the percentage from three years earlier.

An Associated Press article on the study points out that the  dependence of remuneration on shareholder return is one reason why the increase in median CEO pay was the second slowest in the past five years (up from 0.8% in 2014, but well below 8.8% in 2013). Of the sample, the median company achieved a total shareholder return of zero in the latest fiscal year.

Out of a total of 341 executives in the study, only 17 were female. Yet females were top earners: median female pay reached $18.0 million compared with a median of $10.5 million for the 324 males.

Linkedin releases report on recruiting trends

A Linkedin report on recruiting trends across Australia and New Zealand has revealed that the gap between hiring volume and budget is widening, and is likely to continue to do so.

In 2015, hiring volumes increased by 54%, however hiring budgets only increased by 34%.This imbalance is an impediment to overcoming the biggest obstacle to attracting top talent, which 53% of participants agreed was finding candidates in high demand talent pools.

In addition, only 19% of Australian and New Zealand organisations felt they measured quality of hire effectively. This is well below the global average of 33%. Indian and SE Asian organisations were more confident at 54% and 39% respectively.

Comments are disabled