Andrew Leigh says measure will help curb excessive pay and ‘ensure Australia gets a pay rise’

Labor to force companies to compare CEO's pay with that of median worker

If elected Labor will legislate to require publicly listed companies to report the ratio of their chief executive’s pay to that of the median worker in a bid to curb “excessive” CEO pay.

The shadow assistant treasurer, Andrew Leigh, will announce the policy in a speech on the place of unions in Australia on Tuesday, promising to boost pay transparency and that a Shorten government would “ensure Australia gets a pay rise”.

Under the policy, existing reporting requirements would be extended so that by 2021 all listed firms with more than 250 employees would have to report the ratio of CEO pay to median worker pay. Companies would be encouraged to provide a public explanation of their remuneration strategy.

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Similar measures exist in the United States and in the United Kingdom the May government has championed greater CEO pay transparency.

In a statement Leigh said the policy “addresses public concern that CEO salaries are growing at an unfair rate and leaving workers behind”, adding that disclosure “will help inform investors as they calculate risks and decide where to invest their money”.

An Australian Council of Superannuation Investors report found that the average total pay of ASX100 CEOs rose by 9% last year, four times the speed of average wage growth. The median ASX100 CEO earned more than $4m.

Leigh told Guardian Australia the policy would “constrain excessive CEO pay” in cases where a CEO might be paid more “because he’s good mates with the compensation committee – that won’t be a good enough reason”.

“If you have a need and you can explain that to investors, you’ll be fine,” he said.

In the speech, seen by Guardian Australia, Leigh says that Labor’s “frothier critics will say that this is an attack on capitalism” but argues that the policy for greater transparency is more responsible than a cap on CEO pay.

Leigh promises that a Labor government would “ensure Australia gets a pay rise”, citing policies including reversing cuts to penalty rates, ending “the oxymoron of permanent casual” employees, and preventing labour hire from undercutting wages by legislating the principle of “same job, same pay”.

Leigh argues that “in the past six years, real wage growth has all but ground to a halt”.

Leigh blames the long-term decline of union density in Australia. He cites recent research suggesting unions help members secure a wage premium of 5%-10%.

Collective bargaining power helps narrow the pay gap between genders and between Indigenous and non-Indigenous workers, he says.

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Citing his own analysis of the Household Income and Labour Dynamics in Australia survey, Leigh says non-union female workers earned 13% less than men compared with 7% for women in unions. Non-union Indigenous workers earned 18% lower hourly wages than non-Indigenous workers, a figure that fell to 5% for unionised Indigenous workers.

“Every time you see someone proposing policies that make it harder for unions to organise, remember what this means for our economy. A larger gender pay gap. Indigenous Australians being left further behind. More economic inequality.”

Leigh argues that wage rises would help the Australian economy by increasing consumer spending and providing a “buffer against an increase in interest rates” in the event of economic downturn.

In May the Reserve Bank governor, Philip Lowe, said that an increase in wages would be a “welcome development” because it would help reduce household debt, boost government coffers and help “strengthen the sense of shared productivity” gains.

On Wednesday the prime minister, Scott Morrison, said that “of course” he also wanted to see stronger wage growth and he expected that would now occur as companies improve their profitability.

In the past year wages – as measured by the wage price index – were up 2.1% but Lowe has predicted that wage growth is likely to remain “fairly gradual”.