There can be illusionary improvements in efficiency.

Basically it involves reducing ongoing maintenance costs and rather than being proactive, it is reactive instead.

Replacing equipment when it fails, case in point is the current power line grid, at present the consumer is going to be charged for work to repair and upgrade the grid.

Work that before privatisation would have been undertaken as a part of routine maintenance. Instead routine maintenance work was cut back, and subsequent reduction on the number of employees, and 'Whalla' like a magicans slight of hand, costs were reduced and paper profits increased.

Greater return to the shareholder, bigger pay packet for the CEO.

Only one problem at some point in the future, the neglected power grid will need some expensive work, in a very short period of time.

Problem solved, we'll get the consumer to pay for the work, that should have been undertaken by the company.

Then add on a profit margin to the work, again bigger return to the shareholder, and CEO and increased costs to the consumer.

"independence of remuneration consultants" - what will that achieve, when they will still be drawn from the ranks of those who view million-dollar salaries as a just reward for competence?

What is needed is that committees overseeing executive renumeration levels should be drawn from the ordinary shareholders - and by this I mean, where shares are owned by some share fund, the individuals who own the units in those funds.

Or, indeed, anything to ensure that the salaries are set by people who actually know about salary levels in the real world.

James has nailed one of the big problems.

The real costs of getting that short term increase are not always visible.

The long term impacts of minor shifts of expendature can be dramatic down the track but may look good for a while.

The power grid where maintenance and a reduction in redundancy is a classic. Many real problems with a lack of maintenance won't show during day to day running but put in a severe weather event and it's chaos.

The lifespan of some very expensive equipment such as power traqnsformers can be massively reduced by overloading it for even short periods (http://www.usbr.gov/power/data/fist/fist1_5/vol1-5.pdf).

The build/replace cycles for much of the network is measured in decades so a manager who chooses not to invest in maintenance and who uses up the margins already in the system may see a dramatic return improvement in return on investment at the expense of the future of the network.

The human cost of some increases on return on investment also don't always show on the book's, a manager who treats long serving staff as disposable items may get away with it for a period but longer term the organisation misses out on the local knowledge of those staff and any sense of loyalty by those who remain.

Likewise companies which don't invest in new technology may do far better for a while than their competitors who are putting a lot of money into the next generation of product. They probably won't do so well when no one is buying the old technology anymore.

The big bonuses if they are to be paid should be paid well after the period where the initial returns are found. What's the health of the company five or ten years after the management decisions were made?

The issue is also clouded by taxpayer prop-up's and assistance to companies which fall on hard times. It's not just about shareholders making their own choices.

R0bert

Mr. Andrew Leigh, Lawyer, PhD, Professor, Honorable Member of Parliament, thanks for filling our mug with the profound wisdom you accumulated in that fantastic world of ascendancy known as University.

However we, humble servants, do not understand how the CEO who gets as much money in a year as an average worker gets in the course of his/her working life, spends it.

And, isn’t the money that Banks rent, the source for increasing their bulk of money and their ability to increase it further.

Now, if the CEO of a bank takes home a chunk of that money, doesn’t he/she diminish the bank ability to make money? What does this mean to the bank’s depositors and clients?

When from money we go to the substance it should mirror, Wealth; can you please tell us how the shuffling of money by the banker produces wealth for the depositor, the client and the banker? Aren’t in this game two losers and one winner?

Sir, how can one, according to you, distinguish the CEO of a bank running home with a chunk of money from Bernie Madoff, Michael Milken or Richard Pratt that in this article you ultimately celebrate?

And another thing;

Mr. Andrew Leigh, Lawyer, Economist, Professor, Member of Parliament, hence Honorable, are the bankers Honorable in lending the savings they have in trust from people to Bomb-makers, whose products kill people?

Did teachers fail to tell you the ultimate significance of your uniform when you lined up in the school yard to sing the national anthem?

Robert there was a certain individual working in biomedical engineering who would move from job to job, his tactic was "I can save you heaps of money, in my last job I reduced costs by..."

He would stay about two years then move on when things started falling apart, because of lack of routine maintenance.

Current modern CEO's would seem to have much in common with the medieval Robber Barons.

I think James raised a very valid issue in his first post. A close friend of mine - a successful business manager who has been turning around stagnating companies since the '80s - has recently been undertaking a study (yes, skeptic, at one of those universities you rail against) into 'short-termism' in business. A significant problem that prevails in business is the obsession with short-term goals and arbitrary performance indicators:

'in order to receive a bonus, you must increase revenue by 10% over the next 12 months'

'in order to receive a promotion, you must cut our running costs by 5% over the next 9 months'

'in exchange for a one-off bonus of $500,000, I will reorganise the business so that we can reduce maintenance costs by 3% over 3 years'.

Those sorts of things.

The contention is that they do nothing for business in the long term. Goals are met (at any cost) and rewards are paid. The wunderkind of business takes the praise, writes a new entry in his resume and goes on his merry way.

I, unlike so many, have no problem with CEOs earning many millions of dollars. I don't know what they do with it, but if that's what good business practices cost, I have no problem with that. The key word, though, is EARNING. Effective businesses need to set their goals in the long-term. As with James's power grid example, a short-term goal leads to long-term losses. We need to keep CEOs comfortable while they work towards the big goal, but we should not reward them with such enormous figures until they have ACHIEVED that big goal and managed to sustain their achievement.

The case of Ansett airlines is representative how short term goals, destroy the viability in the long term.

Each takeover, meant little more of the assests (the cream) were transferred to another company.

The gas explosion at Mobile refinery from my understanding was a direct result of the management reducing perventative maintenance, as a result victorians experienced rationing of gas supplies for a long time.

Whilst the 2003 article quote seems to reinforce the importance of the guy at the top… I'm not sure whether it means the guy at the top (sorry women executives) has to be good. Particularly in light of this from the Financial Times (online): 'Two chiefs could be wiser than one' by John Gapper, 20th of April 2011, includes

"Among the spectacular failures of two strong-willed executives failing to get along at the top were Sandy Weill and John Reed of Citigroup, who became co-chief executives for a brief, unhappy period after the 1998 merger that formed the banking group. Their rivalry became so intense that they went to the board to demand that it choose between them (it chose Mr Weill)."

Why do CEO salaries seem to operate in the opposite way to the rest of capitalism's markets?

Is there a relatively simple solution for public companies?

What about public calls for tenders for the position of CEO – LOWEST bid wins!

For the record I am prepared to undercut the lowest bid for the position of CEO of the Commonwealth Bank by 10% or $500,000pa, whichever is the lesser. Contact details are available through GrahamY.