Phil Ruthven AM
Ecological and social governance (ESG) is gaining traction in the world of business either through a positive embracing of the concept, accepting responsibility, or as an obligation to conform. Preceding this new protocol was the introduction of the term “stakeholder” to include employees, suppliers, customers, and the population at large, as well as shareholders (the owners).
There are a lot of external environments for a business – the Institute identifies 11 of them – many with stakeholders. ESG, as it currently stands, is more focused on three of these 11 environments, being the ecology (resources) and social (the community and employment environments).
In this monthly Insight, I will concentrate on just one of them, being employment, its stakeholder status and the associated good governance obligations. The main issues of good governance with workers are:
- fair rewards and creating a change reward to payment by results rather than inputs
- no discrimination by any factor
- advancement opportunities where possible
- accommodating individual objectives of life/work balance
- a unique or at least a positive organizational culture
- other WBP benchmarks
We won’t cover all these in a short Insight such as this. But we will touch on four of them.
We begin with the discrimination issue within Australia and in relationships with other nations. For too long, workforces were rife with discrimination of gender, marital, racial, religious, education, societal income bracket, and other forms of discrimination. Most of these are now being addressed by laws or commonly accepted World best practice (WBP) protocols.
The following exhibit highlights the slow but laudatory progress made with regard to gender and marital status issues since the 1900s. Australia is arriving at a much more balanced and fair mix.
The following exhibit shows the long history of real wage growth over more than a century and a half, as well as the more recent history (half a century) of the division of spoils of the nation’s economy.
Firstly, wages growth
There have been four long bouts of negative growth in real wages (i.e. after deducting inflation) and 34 negative years over the last 160 years. Most of these negative years were in the Industrial Age up to 1965. Yet it wasn’t manufacturing that was the cause. Instead, I believe it was the vagaries of Agriculture through floods, droughts, bushfires, and poor commodity prices. After all, a third of that industry’s revenue fell, stripping 6% or so off GDP. And more fell going down the chain to consumers and exports. However, the two Depressions and two World Wars contributed even more to these terrible setbacks. Nevertheless, there were specular wage booms too in the Industrial Age, enough to create an average wage growth over the 100 years to 1965 of 1.6% p.a. or just 0.2% points below the then productivity growth of 1.8% p.a.
Our entry into the new Infotronics Age of service industries and ICT has seen much greater stability, only two negative growth years in wages and two zero growth years (last year and this one we are in). The average growth has been a real 1.7% p.a., identical to our productivity growth. This was due largely to the absence of the disasters we had in the Industrial Age and the lesser contribution (but still important) of modern fiscal and monetary policy.
The below exhibit on earnings shows the employee shares of the economic cake, versus the other producers’ shares. In this case only for the new Infotronics Age of some 57 years, so far.
At first glance, it would appear that wages are getting a shrinking share, but far from it. Employees now get superannuation, paid by employers as they do their wages. And one can add another 8% from the annual earnings of those super funds. While those earnings are deferred income sources at retirement, the total share that employees get these days is higher than at the end of the Industrial Age. But not every year; there is still volatility in that share. The trend is positive for employees as stakeholders in the economy.
Younger generations of workers; the Gen Xers and the Net Generation, are more conscious of work/lifestyle balance than the older retiring or retired generations. And they are living that balance. The following exhibit shows the ever-shortening average week of work and rising real wages.
So, as far as stakeholders go, our 13 million + employees are doing well: not every year but they are as a long-term trend. That is being achieved with a lot of negotiation.