The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Friday, May 20, 2011

Bernie Fraser backs Glenn Stevens's pay

Bloomberg reports that long-time Treasury Secretary and RBA Governor, Bernie Fraser, has strongly supported Glenn Stevens's modest pay package (see also my own analysis below):

"Former Reserve Bank of Australia Governor Bernie Fraser said his successor Glenn Stevens’s salary is appropriate and that government oversight may result in compensation that is too low.

Treasurer Wayne Swan indicated last month the government may consider removing the Reserve Bank’s control of its top executives’ salaries, including Stevens’s package worth A$1.05 million ($1.12 million)...

The debate between the RBA and Prime Minister Julia Gillard’s government centers on the wages the RBA needs to pay to keep officials in public service in a nation with the world’s sixth-highest gross domestic product per capita. The average compensation of chief executive officers of Australia’s four biggest banks in the most recent fiscal year was A$11 million.

“The work load is solid and there’s a lot of responsibility, you are making a decision that affects everyone in the country so you don’t take those lightly and you think very carefully about them,” Fraser, 70, said in a phone interview yesterday from his home near Canberra. “You have to work hard and it’s the level of responsibility that weighs on you.”

The bank’s board agreed to a A$234,000 pay rise for Stevens during the height of the financial crisis in October 2008, according to correspondence between the central bank and the Treasurer’s office obtained by Bloomberg News under a Freedom of Information Act request.
Pay ‘Pipeline’

“It may have been untimely,” said Fraser, who earned between A$400,000 and A$409,999 in 1993, three years before his term ended. “But in my experience, it may have been in the pipeline for quite a long time.”"

And this is what I wrote the other day:

"Contrary to some absurd suggestions, Glenn Stevens deserves every cent of his well-below-market pay packet. A few commentators have made farcical comparisons to back their view that Stevens is paid too much. Let me objectively lay that debate to rest.

Glenn Stevens runs Australia's central bank, which is our single most important financial institution. It is the backstop for the entire banking system, and exerts a decisive influence over the path of Australia's $1.4 trillion economy. Stevens gets paid about $1m per annum.

In its 2010 Annual Report, the CBA discloses that its top 12 executives are all paid, on averge, $5.4m per annum. Assuming that broadly similar pay benchmarks are used across the other three major banks, that tells us that there are at least 48 bank executives, setting aside all their smaller bank peers, who receive, on average, over five times as much total annual compensation as Glenn Stevens. (If we ignore Ralph Norris's 2010 remuneration of $16.1 million, the average/median pay for the 11 other CBA executives is still $4.4m/$4.2m per annum.)

A conservative assumption is that Stevens could get at least a second-tier job at one of the major banks. The precedents set by David Morgan (Westpac), Andrew Mohl (AMP) and John Fraser (UBS) imply he could actually run one. This, therefore, is his opportunity cost. Even supposing he could only pick up a subordinate position, Stevens is, in fact, very poorly paid if one accepts the principle of market-competitive benchmarks."