The Australian Council of Superannuation Investors (ACSI) has had a significant impact on remuneration governance practices in Australia. ACSI’s influence comes from its willingness to take a leading advocacy role, as exerted through the voting recommendations it makes to its member industry superannuation funds on remuneration-related resolutions at company AGMs, and the fact that its members collectively manage more than $400 billion in assets.
For FY13, as for prior years, ACSI commissioned proxy adviser Ownership Matters to review CEO pay in ASX 200 companies, looking at pay levels, termination pay and case studies of performance pay. The research was released on 18 September.
Consistent with overseas trends, ACSI has an interest in “realised” pay, of which the most significant component is the market value of equity that has vested. As ACSI points out, this varies from the amortised value under accounting standards that is required to be shown in Australian remuneration tables, which at best is confusing and at worst downright misleading. For these reasons, the main remuneration disclosure tables in the UK, Canada and the USA no longer show the amortised value of long term, multi year equity payments.
ACSI has defined “realised” value for share rights as the market value of shares when the rights vest, and for options as the difference between the exercise price and the market price of shares when options are exercised. The exercise date may be years after the vesting date and may relate to grants from several years being exercised opportunistically, which can produce highly variable equity values from year to year.
Key findings from this year’s study indicate that:
- Median fixed pay for a Top 100 CEO was $1.83 million in FY13 – down from $1.95 million in FY12 (although median same incumbent fixed pay increased by 3%). Average fixed pay has been essentially flat from FY08 to FY13.
- Cash pay for S&P/ASX 100 CEOs, which includes all aspects of pay other than the disclosed “accounting value” of equity incentives, also fell in FY13, from $2.89 million to $2.53 million, the lowest level since 2006, while average cash pay has declined to pre-2006 levels.
- Median and average cash bonuses for Top 100 CEOs declined in FY13. The median bonus for those CEOs who received a bonus fell 10.4% to $950,000 and the average declined 7.2% to $1.22 million. These were the lowest levels recorded in ACSI’s study for a decade.
- The proportion of CEOs receiving a bonus rose, however, from 82% to 87%.
- Bonuses accrued – the total value of bonuses awarded (including any deferred components) – also fell in FY13, with the median declining 5% to $1.3 million.
- Bonus deferral among the ASX100 sample rose, with 44% of the CEOs having a proportion of their bonus deferred, up from 33%.
- Significantly, termination payments to chief executives of Australia’s largest listed companies have shrunk by close to 70 per cent in the past five years, with the median termination payout to CEOs falling to $1.3 million in 2013, down from $3.5 million in 2008.
ASX 100 CEO pay has lagged inflation and wages growth in the period since the GFC, with the result that average total statutory pay for CEOs, of $4.84 million, is now a multiple of 63 times average earnings, which was the lowest multiple in a decade and 33 per cent below the 2007 peak of 94 times.
For those observers of pay trends who have survived several economic cycles the pattern is not unusual – CEO pay responds to the financial performance of their companies, whereas the regulated wages of non-executive employees rarely decline.
The ACSI study noted a trend to fewer “no” votes on remuneration reports. This could be the result of an economy with fewer excuses for exuberance but, as ACSI suggests, probably also results from better board governance and investor engagement.
The results cannot be directly compared with our own research due to methodological differences, however, in December 2013 we found a similar trend in relation to modest same incumbent fixed pay increases (see HERE)
Our analysis also suggests that the reduction in cash STI approximates the value of the increased STI deferral, provided the full deferral is used, rather than the amortised value.
See the full ACSI report HERE.© Guerdon Associates 2021 Back to all articles