To get a wise and well considered view of excessive salaries, Chanticleer turned to Charles Handy, the Irish philosopher and author of 17 books on organisational behaviour and management.

In an interview with the BBC earlier this year Handy was asked about the relentless focus by senior executives of major corporations on the need to receive increasingly higher financial incentives.

"All the evidence shows that money is not a good incentive," he said. "Once you have got it, after six weeks you forget that you didn't have it before and you want another bit of incentive.

"You are going to have to pile the incentives on every six weeks."

Handy was told by a senior executive at a large global oil company that although he was paid a lot of money, he would not work less hard if paid less and would not work harder if paid more.

He asked the executive why he accepted so much money and the reply was: "Why turn it down? They are offering it to me." Handy says the blame for over-the-top salaries rests with remuneration committees, which tend to call in consultants to benchmark what they are doing.

"We have this ridiculous system where remuneration committees sit down and say well obviously we don't want to pay our people less than the average so we pay them just a little above the average," he said. "This goes along every year among the cohort and the average moves up every year even though it does not affect the performance at all. If you ask any chief executive why he takes so much money and he says, 'Nothing to do with me, old boy, it's the remuneration committee'."

Handy, who pioneered the concept of the portfolio career, began his working life at Shell. He later worked as a professor at the London School of Economics.


"This [remuneration] all changed in the mid-1970s," he said. "When I was at Shell before that there was no such thing as bonuses, nobody worried about the shareholders much as long as they got a reasonable dividend.

"We certainly didn't measure our performances by the share price. The chief executive of Shell got very well paid but probably only twice as much as the prime minister. Of course, it is now 10 times what the prime minister gets."

To put that in context Australian Prime Minister Malcolm Turnbull is paid about $470,000 a year and British Prime Minister David Cameron is paid about $564,000.

Australia's top two public servants, Glenn Stevens at the Reserve Bank of Australia and Wayne Byres at the Australian Prudential Regulation Authority, are paid about $1million each.

In Australia, the explosion in bank salaries began in the early 1990s when Bob Joss was appointed CEO of Westpac.

When Joss joined the bank from Wells Fargo in California he demanded the same sort of remuneration practices as those in the US including generous share option packages.

He agreed with the Westpac board a package which included a salary of $1.9million plus 6.9 million options and the purchase of two residences, including one at Palm Beach in Sydney.

When Joss arrived the then CEO of the Commonwealth Bank of Australia, David Murray, was paid about $500,000 a year.


Abuse of share options packages at other companies resulted in a change in equity incentives from options to reward shares.

However, options remain the preferred method of delivering incentives for the owners of fast-growing companies. For example, the initial public offering document for the Australian software company Atlassian includes details of a share option plan.

The plan allows for the issue of options and share appreciation rights of up to 5million shares per person per year.

The problem with the big banks is that the CEOs do not own the company but they are paid as if they do.

Handy questions the huge discrepancy in pay between those at the top and those at the bottom.

"What is it that justifies someone being paid 400 times more?" he said.

"He is not 400 times better, he is just 400 times more lucky to be up at the top standing on the shoulders of other people who do all the work and he collects all of the rewards. It doesn't seem right."

In another interview conducted soon after the global financial crisis Handy was asked why bankers and people in the financial world made so much money compared to nurses and teachers. He replied: "The answer is very simple: bankers are paid for the lack of meaning in their work."


That answer was probably influenced by the fallout from the global financial crisis, which exposed a culture of greed inside major financial institutions in the northern hemisphere.

It is ironic that about 80 per cent of the institutions which sold and promoted toxic sub-prime mortgages also listed "integrity" as a core value.

In Australia, banks have reined in the pay packets of CEOs but it is still possible for a typical bank CEO to earn more than $50million in cash and shares over their five- to seven-year tenure.

BBY machinations

Stephen Vaughan, the KPMG liquidator of the collapsed stockbroking firm BBY, is working around the clock to finally pin down exactly what led to the $19million shortfall in client funds.

Vaughan is being forced to interview former employees to work out what happened because BBY did not maintain comprehensive records that showed which clients were entitled to the balance in each client segregated account (CSA).

He has been unable to find any document in the nature of a trust ledger account or a statement of trust account for each client recording the contributions and withdrawals by that client from a particular CSA.

The report being prepared by Vaughan will be given to the Supreme Court of NSW by November 27 and used to guide the judge as to whether or not the $17 million held in 47 CSAs should be pooled or kept separate.


Either way it is clear that BBY was not run in keeping with normal trust account principles because Vaughan has found evidence that there were transactions between CSAs and across different product lines.

The fact that the equity accounts and exchange traded accounts supervised by ASX had an excess of funds beyond the client liabilities suggests funds from over-the-counter products were intermingled.

That is probably a good argument in favour of pooling funds.

Meanwhile, the Australian Securities and Investments Commission is yet to decide whether to use its Assetless Administration Fund to pay for investigations into the activities of former directors.

Tony Boyd

Twitter: @TonyBoydAFR

Tony.boyd@afr.com.au