To small shareholders, the intricacies of corporate governance can be complicated. In the midst of the flood of forms and paperwork required of public companies, it can be a battle simply to find out where the sandwiches are going to be served after the AGM.
When it comes to large public companies, one issue is particularly complicated. Although their reports might contain dozens of pages discussing the workings of the remuneration committee, performance hurdles, comparison benchmarks and sector relativities, it's not easy to calculate what their executives are actually paid.
And it is even more difficult to determine what those executives might be entitled to in future years.
Shareholders' frustration at not being told the details of salary packages is motivating the frenzy of inquiries into backdating of stock options at some of Silicon Valley's biggest technology firms.
It's no wonder public companies are reluctant to be completely open and transparent about what they pay senior executives. They know that as soon as they announce what their chief executive earns, someone will complain it's too much.
Last week was a perfect example of the typical course of events in the cycle of CEO salary stories. To the surprise of no one, it was revealed that the rate of growth in the salaries of the CEOs of the country's 100 largest companies bears no relationship to the performance of their company. The top earner, Macquarie Bank's Allan Moss, was reported as last year taking home $18 million -- a 200 per cent increase on what he earned three years ago, while total shareholder return over the same time rose by 50 per cent.
Some CEOs improved their pay while their companies' profits were either falling or non-existent.
There once was an easy response to shareholders who thought their CEO was paid too much. Shareholders could sell their shares in the company. It was the corporate equivalent of "if you don't like it, you can leave".
Today the situation is more complicated. Nine million Australians have compulsory superannuation. They can't simply tell their superannuation fund to not invest in companies paying exorbitant amounts to their CEOs.
Compulsory superannuation has changed the issue of executive salaries. No longer is it just a purely private matter between the management of public companies and their owners. Now, because share ownership is so widespread, and because such a regime is mandated by legislation, executive remuneration has become an issue of legitimate public debate.
The question of how much is "too" much to pay a CEO is beside the point. Relative to the annual minimum wage of $25,000, a yearly salary of $10 million is a great deal. But this $10 million pales into insignificance when compared with the value of the decisions that CEOs make which add or subtract billions of dollars to shareholder value.
The real question is not the level of CEO salaries, but how those salaries are determined. Individual shareholders hold such a tiny fraction of voting power that they can have no say in setting salaries, while institutional shareholders are reluctant to exercise the power they have. The matter is usually left to the company board.
This is a demonstration of what happens when companies become so large and have so many owners that control moves from the owners to the managers. Precisely this phenomenon was predicted in the 1940s by one of the 20th century's greatest economists, Joseph Schumpeter.
In Capitalism, Socialism and Democracy (1942, Harper and Brothers), Schumpeter argued that the "depersonalisation" of corporations would threaten the existence of capitalism and could even hasten the onset of socialism. He was concerned that as companies grew in size, they would become bureaucratised, executives would acquire "habits of mind similar to those of civil servants" and "capitalist motivations" would wilt away.
As yet, Schumpeter's fears have proved unfounded. This is despite the best efforts of corporate regulators to get executives to think like civil servants by removing from company managers any capacity for initiative or risk-taking for fear of being sued.
One of the measures that would surely hasten capitalism down the path predicted by Schumpeter would be any attempt by government to regulate how companies determine CEO salaries.
But unless shareholders, either individually or collectively, can demonstrate that they are genuinely involved in setting CEO salaries, such regulation might not be too far away.
Only yesterday, corporate governance advisers CGI Glass Lewis recommended shareholders oppose an increase in directors' salaries at funds management company Perpetual. Such actions might stall the day of regulated limits on executive pay. But the risk remains.
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