ACSI publishes review of ASX 200 CEO pay

A key function of the Australian Council of Superannuation Investors (ACSI) is to make recommendations to their member funds as to whether remuneration resolutions should be supported. Given the size of equity investments held for members of these funds, and its willingness to take a leading role, ACSI has had a significant impact on remuneration governance practices in Australia.

As with prior years, ACSI reviewed CEO pay of the largest Australian listed companies.

The study method differs from Guerdon Associates annual review published each December (see HERE). The Guerdon Associates review focuses on incumbents who have been in the role for two full years – this informs boards on rates of increase applicable to those CEO’s who have survived another year. The ACSI review focuses on all 152 CEOs (including co-CEOs) of the ASX 200 who have been in the role for just one full year, and so includes relatively unproven new appointees. Consequently, it measures the impact that relatively new appointees have on CEO pay.

On the ACSI figures an Australian CEO lasts about 4 years. The ACSI method measures the impact that relatively new appointees have on CEO pay. New incumbents, usually promoted from within, receive less initial starting pay than prior incumbents. Therefore, given the high rate of Australian CEO turnover, it is not surprising that ACSI reports a drop in CEO fixed pay across all incumbents.

In accord with the trend also evident in other countries, ACSI has an interest in the “realisable” pay received by CEOs. Although referred to as “realised” pay, what ACSI means is the sum of all vested pay components’ market value, whether they have been realised or not. The most significant of these components is the market value of equity that has vested. As ACSI points out, this varies from the Australian statutory tables using amortised value under accounting standards, which are confusing at best and potentially misleading. For this reason statutory disclosure tables showing amortised value of long term, multi year equity payments are now not used for the main remuneration disclosure tables in the UK, Canada, or the USA.

Key findings from this year’s study indicate that:

  • Average ASX top 100 fixed pay declined by 2.4 percent to $1.9 million in 2012, whereas average ASX 101-200 CEO fixed pay was $973,576 – almost 5 percent higher than average fixed pay in 2011. As noted above, the high degree of CEO turnover is a large factor here.
  • Average short-term incentives (STIs) for ASX top 100 CEOs increased by 4.8 percent in 2012, compared with a 20 percent decline in the size of STIs in 2011. 
The average STI in 2012 rose to $1.315 million while the median declined by 3.5 percent to $1.060 million.
  • The majority of sample CEOs received an STI in 2012 – 82 percent – although the proportion of CEOs who did not receive an STI was the highest since 2003. 
 STIs for the ASX101-200 CEOs were lower in 2012, with the average STI falling by 4.6 percent to $402,025, with just over a quarter receiving no STI.
  • High levels of cash pay remain a feature of the ASX largest 100 company CEO sample. This is a concern for ACSI, which has indicated over recent years that it would prefer remuneration be comprised of a significant proportion of deferred equity for better shareholder alignment (see our article on their guidelines HERE). In 2012, average and median cash pay remained close to $3 million despite declining from 2011. 
Average cash pay in the ASX 101-200 sample rose slightly, with most of the increase attributable to explorers, in which CEOs received a 10 percent more cash pay in 2012.

As with prior years, the study focuses on examples relating pay to performance where possible. More than anything else, the case studies indicate an understanding of the nuances in assessing performance and, as a consequence, do not report much in the way of inappropriate outcomes. This in itself, is interesting, in that stand out cases of egregious pay have become scarce. See the outcomes for yourself HERE.

© Guerdon Associates 2024
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