Failures show the executive salary defence is based on a lie

"Failure is not an option," lead flight director Gene Kranz barked to his ground crew as they desperately fought to bring the stricken craft back to earth.

Since then, the phrase has taken on a life of its own, bandied about on suburban sporting fields across the globe on any given weekend.

Despite the similarities between sport and commerce (win-lose), it's one of the few phrases yet to hit the spot with local business leaders.

But who could blame them? With the money now paid to senior executives after corporate calamities, failure has become a lucrative option for many. If events of the past few months are anything to go by, some are paid far more for blowing up the company than they ever earned for success.

This has added an entirely new dimension to a trend we have witnessed for many years; the yawning gap between executive salaries and those of workers.

It seems to have become a universally accepted convention that executives who picked up massive bonuses during the good times were not only not required to repay them when it became apparent that their actions had crippled a corporation, but they were then paid handsomely to exit the company early.

Take Andrew Scott of Centro Properties Group. The company, one of the world's biggest shopping centre owners, is on life support, but only until the surgeons can figure out how to remove as many vital organs as possible without anyone noticing. Its share price has toppled to 20c, wiping out most investors, and there is little hope for the company.

Scott lavished rewards on himself as he loaded Centro up with debt during its acquisition binge. But when he was dumped late last year, the board decided to hand him a $3 million parting gift.

In the past few months, there has been an unprecedented exodus of senior executives from some of our biggest companies, almost all of them following poor results.

For most, the parting salaries will not be revealed until annual reports are compiled towards the end of this year.

But some have been made public.

Take Mike Tilley, the former boss of Challenger. He signed a new contract with the financial services group nine months ago but "achieved his mandate" four years early, the company said in August shortly after announcing a $44 million loss; its share price having plunged 60 per cent since Christmas.

That performance wasn't reflected in his parting salary; at just under $10 million, it was more than double last year's pay when the company appeared to be hitting its straps.

This will be a recurring theme for the rest of this year: huge rewards for failure.

Why? One possible answer is that boards of directors don't want to upset the cosy world they inhabit with senior managers, and worry they may have trouble replacing executives unless they offer huge rewards regardless of performance.

Research collated by the Centre for Corporate Governance at the University of Technology, Sydney, has thrown up some startling findings on this subject.

It will come as no surprise to learn that executive salaries have grown enormously while those of wage and salary earners have remained steady or even fallen in real terms because of globalisation.

A study by Tony Atkinson of Oxford University and Andrew Leigh from Australian National University found that in 1992 a typical executive in Australia's top 50 companies earned 27 times the wage of an average worker. By 2002, this had risen to 98 times the wage of an average worker.

The arguments from business leaders over the years to justify this ever-widening gulf is that Australia has to compete on a global market and so our companies must pay global executive salaries.

But that is a false argument.

We've been fed a line and we've swallowed it without question. The truth is that this is an Anglo-American-Australian trend only.

Executives in Europe and Asia are not rewarded to anywhere near the level of those in Britain, the US and Australia.

Here are a few examples. Hiroshi Okuda, the chief executive of Toyota, the world's most successful automobile group, earned $903,000 in 2004. Rick Wagoner, the head of General Motors, which last year lost pole position in the global auto stakes and which is rapidly heading towards financial oblivion, earned $10.19 million in 2006.

In Australia, Telstra boss Sol Trujillo had his salary boosted to $20 million last year, even though shareholders voted against the near doubling of his pay.

But Norio Wada, his counterpart at Japan's NTT (which is twice the size of Telstra) earned just $382,000 in 2004 while Thierry Breton, the boss of France Telecom, earned $1.52 million in 2004.

With the rise of China as an industrial giant, the pressure should be on global executive salaries to fall.

Little is known of executive pay for the huge Chinese Government-owned corporations that are scouring the globe for investment opportunities. But it would be nowhere near the level of those in the Anglo world. In fact, it would be fair to assume that for Chinese business leaders, failure definitely is not an option.