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Rudd takes aim at greedy Fat Cats. Has he gone too far? Where does government intervention begin and end?

Prime Minister Kevin Rudd has declared war on bank executives’ bulging pay packets and obscenely large financial incentives.

His announcement is well timed (executive greed has been hogging the media spotlight) and generally well received (the Australian Bankers Association is understandably miffed).

But has the PM thought the issue through properly or is he getting caught up in his own PR exercise and just shooting for the popular vote?

Rudd plans to deal with the "extreme capitalism", which he says is at the root of the global financial crisis, by reining in executive greed in the banking sector.

There’s no question that exorbitant salaries are paid to some bosses of financial institutions. The former chief of bankrupt investment firm Lehman Brothers, Richard Fuld, received US$484 million in salary, bonuses and stock options and locally retiring Macquarie Bank chief Allan Moss pocketed $100,000 million in cash, shares, options and bonuses.

But whereas America’s decision to impose limits on executive pay and termination benefits is based on the government’s $US250 billion injection of equity into selected banks there is no such quid pro quo in Australia because there has been no bank bailout.

Few would argue the need for more transparency regarding executive salaries or quibble about a cap being put on them. But is there any justification for the government stepping in?

Rudd's plan takes in only financial institutions, and probably only those regulated by the Australian Prudential Regulation Authority. That leaves a long list of companies that would not fall under his control.

There is no indication that the association Rudd has made between short-term incentives and risky business is accurate and most importantly, that his plan of attack will be effective.

Do you think this issue warrants government intervention?

Do massive fat cat salaries get up your nose or do you believe that without them our financial institutions will fail to attract top executives?

Tags: Banks, cats, fat

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Permalink Reply by Jim on November 6, 2008 at 7:08pm

I think it should warrant board intervention on behalf of the shareholders.One wonders why boards can be so generous with shareholders money.If the ceos etc are to be paid large salaries ,I think that anything over a couple of million is too large for someone to be paid as a salary anyway,then they should have to buy the shares the same way that employees have to in a lot of instances when offered company shares.After all if things look a bit shaky profit wise there are two things you can be sure of,staff cuts and assett sales.
Probably not government intervention as such although a ruling on share options as bonus payments may be ok.

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Permalink Reply by Miffy on November 7, 2008 at 9:41am

You're right about shareholders needing to do something about this rather than the Govt.

Too much Govt intervention is not a good thing in my book.

Shareholders need to stand up and complain if they think that CEOs and boards are getting paid too much - the Australian Shareholders' Association is a good place to start for those interested in knowing more about this and becoming more involved.