Executive Pay Shrinks - Report

Termination payments to Chief Executives of Australia’s largest listed companies have shrunk by close to 70 per cent in the past five years, an annual survey of CEO pay has found.

The 13th Australian Council of Superannuation Investors’ (ACSI) – a body which represents Not for Profit super fund interests – shows the typical fixed pay for a Chief Executive at a top 100 ASX-listed company fell by nearly 7 per cent to $1.83 million in the 2013 financial year.

The report says continued investor scrutiny, and increased vigilance by the boards of ASX100 companies has resulted in the median termination payout to CEOs falling to $1.3 million in 2013, down from $3.5 million in 2008.

The report says fears that executive pay levels would be driven up by the 2009 Corporations Act reforms (which limited the size of termination payments that could be made to senior executives without shareholder approval) do not appear to have been realised.

ACSI chief executive Gordon Hagart said the study findings showed the benefit of investor scrutiny.

“When investors behave like owners, and make it clear to boards their expectations around executive pay, Australian boards generally respond,” Hagart said.

“It seems boards and investors have, together, used the changes to termination payments legislation to drive down the aggregate costs to shareholders of executive departures.

“An important parallel effect has been better alignment between management and owner, and a reduction in the perverse outcomes that can result from overly-generous termination arrangements – the ‘pay for failure’ syndrome.

“It is worth bearing in mind that the average total statutory pay for CEOs, of $4.84 million, is still a multiple of 63 times average earnings – but is now at its lowest level in a decade and 33 per cent below the 2007 peak of 94 times.

“ACSI observes that increased investor engagement, combined with the work of more active boards, has resulted in better remuneration packages that improve alignment between executives and the providers of capital.

“We have seen fewer votes against remuneration reports over the past year as remuneration packages have improved in the market. Specific improvements include the major reduction in termination payments, more demanding bonus hurdles, longer performance measurement periods and an end to the culture where bonuses were seen as entitlement rather than reward for outperformance.”

On a statutory pay basis, the report found that the highest paid CEO in the 2013 study was CSL’s Brian McNamee with $19.11 million, which included almost $10 million in costs relating to his retirement at the end of 2013. On a realised pay basis, Westfield Group’s co-CEOs Peter and Steven Lowy were the highest paid, receiving a combined $19.87 million of cash and equity incentives vesting.

The full report can be found HERE