Capping and corporate governance: An analysis of executive remuneration in Australia

This article examines whether capping executive remuneration in Australia would solve the issues identified with the current corporate governance system responsible for executive remuneration. To answer this question the article is split into three parts. The first part examines the issues associated with current corporate governance mechanisms to facilitate an efficient pay level for executives. The second part discusses how caps operate and argues that caps could create efficient pay outcomes. Additionally, it argues that the concerns that capping executive remuneration would cause internationally mobile executives to leave Australia in search of better salaries are unfounded. Finally, the third part of this article examines the corporate governance recommendations put forward by the Productivity Commission and the subsequent reforms to the Corporations Act 2001 (Cth) as well as the future of capping in Australia. The article concludes by finding that market-friendly caps could be an effective corporate governance mechanism for the future.