Bonuses and finance

Absence of bonuses in the industry sector is certainly highly correlated with intrinsic motivation but it may be an effect rather than a cause. The industry fund movement was a child of the trade unions; the commercial sector was a child of Wall Street. The two cultures are completely different. I think if an industry fund executive ever asked for a $9 million retirement payout like Geoff Dixon got, he’d be more likely to receive a knuckle sandwich.

Garry Weaven has been one of the key players in the industry sector:

Even in “semi-retirement”, Garry Weaven cannot resist a plug for Australia’s $1.5 trillion in superannuation savings, which he helped kick-off in the 1980s as the assistant secretary of the ACTU.

“In international competitive terms, it’s close to best practise,” says Weaven, 59, adding that the pool will swell to at least $4 trillion by 2020. “It’s an investment powerhouse for the nation.”

But he is not happy that financial planners and accountants “almost never” recommend industry funds.

“Because we have this misnomer called financial planning, which is actually commission selling, most people get herded into the more expensive funds, which are often not the best funds,” says Weaven, who forged a post-union career as the founder of Industry Fund Services, which provides funds management, planning, banking and legal support to many of Australia’s biggest industry funds. […]

At least Weaven doesn’t need to worry about not having enough super. He began contributing in the 1970s, because the first union he worked for after completing an economics degree at Melbourne’s LaTrobe University happened to have a scheme.

Weaven went on to become the Victorian state secretary of the Municipal Officers Association, aged 27, and stepped straight into a bunfight over super. Senior officers, after years of contributions, would retire with super of only 1.1 times their final salary because of poor investment decisions, so Weaven spent much of the 1970s campaigning for a better scheme for local government workers.

In 1981, after he joined the ACTU, the campaign spread to other industries. “If you look at super in the early 1980s, it had very selective coverage,” Weaven says, noting that only about 20 per cent of female workers and only 24 per cent of blue-collar workers were covered. “And those who were covered never got much benefit because it required long service with one employer. It was massively tax-beneficial but most people were locked out.”

Weaven became ACTU assistant secretary to Bill Kelty in 1986 but left in 1990 to work as a consultant to Westpac, before setting up IFS in 1994.

“Nineteen years is a fair while in the union movement,” he says. “They were great days, the ACTU was at its peak. But it was very wearing, there was a lot of conflict – really, I was just getting a bit frazzled with it all.”

As counter-evidence as to whether absence of bonuses encouraged innovation and success, consider the life insurance industry in the days when it was essentially all driven by non-profit mutual societies. A sleepier bunch of institutions you could never hope to find.

On the third hand, consider the state banks. As they were deregulated in the 1980s and remuneration ceased to be tied to government salary scales, they got adventurous, started taking risks and, many of them, came to grief as a consequence.