CEO Pay Levels

Be aware of broad based news media analyses of executive pay.  It is rare that the news media gets this right.  One recent newspaper table of CEO pay assumed all equity received was a long term incentive and added this amount to long term cash to provide a total LTI figure.  As most directors and management are aware, equity can be provided as part of the annual bonus, as a salary sacrifice in lieu of cash, or as part of a recruitment bonus.  In addition, varying levels of company disclosure compliance require experts to make adjustments to ensure validity and consistency before entering into a database, like GuerdonData®.  So, given these issues with recent newspaper reports, what are the true levels of CEO pay?

Table 1 below shows the level of ASX 300 CEO pay for all 2006 disclosures up until last week.

DEC Table 1

Table 2 below contrasts this with the levels of CEO pay disclosed for 2005.

DEC Table 2

Note that each reward component is independent of the other.  So the individual receiving median Total Fixed remuneration (TFR) is not the same person receiving median Short Term Incentive (STI).

We suggest care also in comparing one table directly to the other.  Disclosure and valuation standards have changed between the two years, especially in regard to equity components of pay.  In addition, the two tables do not represent the same incumbents from one period to the next. 

So if you want a more valid feel for the level of remuneration increases, we suggest you refer to last month’s newsletter article (see HERE), which was based only on ASX 300 CEOs who were in the job for two consecutive years, with adjustments for the impact of AIFRS standards on disclosures where possible.

We have also examined the differences in remuneration mix between ASX 300 CEOs across the two years in the figures below.

DEC Graph 1

DEC Graph 2

Again, care should be taken in contrasting these charts.  On the face of it, for example, it appears that the proportion paid as LTI has slipped since 2005.  But this does not account, for example, for the exclusion of pre 2002 LTI option grants and negative LTI amounts under the new AASB 124 standard applicable for the first time this year. 

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