Executive Pay and Internal Relativity
Internal relativity is a key lens through which to assess fairness, consistency, and alignment within an organisation’s remuneration framework. Importantly, it can be used as a ready reckoner for likely governance issues. For example, is there a succession risk, or does the board need to recognise narcissistic qualities that mask underlying risks or bad news?
To assist, we focus on comparing the highest and second-highest Total Fixed Remuneration (TFR) and Maximum Total Remuneration (Max TR) across ASX100 companies. CEOs are included. If your companies’ ratios fall outside of the ratios unearthed in this analysis see our checklist at the end.
Data Source and Sample Overview
The data used in this analysis is based on FY24 disclosures from ASX 100 companies. Companies without available FY24 remuneration data were excluded. The effective sample size is 95 for TFR and 92 for the Max TR analysis, as two companies did not have an identifiable second-highest paid executive for Max TR and one MD did not receive any incentives, making it an unfair basis for comparison.
Summary Statistics: TFR, Max TR and Ratios
The tables below provide a summary of key statistics for the highest and second-highest TFR and Max TR figures.
Table 1: Summary Statistics for Highest TFR and Max TR
|
|
Highest TFR |
Highest Max TR |
|
Average |
$1,837,457 |
$8,877,879 |
|
25th Percentile |
$1,525,004 |
$5,631,603 |
|
50th Percentile |
$1,802,520 |
$7,283,346 |
|
75th Percentile |
$2,103,190 |
$8,981,351 |
Table 2: Summary Statistics for Second-Highest TFR and Max TR
|
|
Second Highest TFR |
Second Highest Max TR |
|
Average |
$1,102,878 |
$4,046,201 |
|
25th Percentile |
$900,000 |
$2,531,730 |
|
50th Percentile |
$1,031,000 |
$3,250,085 |
|
75th Percentile |
$1,200,000 |
$4,839,092 |
For the highest paid executives, the average, median, and other quartiles of Max TR are approximately 4 times those of TFR, while for the second-highest payments, this difference is smaller at around 2 to 3 times TFR.
The table below presents the ratios of the highest to second-highest TFR and Max TR.
Table 3: Summary Statistics for TFR and Max TR Ratios (Second-Highest / Highest)
|
|
TFR |
Max TR |
|
Average |
0.61 |
0.48 |
|
25th Percentile |
0.53 |
0.40 |
|
50th Percentile |
0.58 |
0.48 |
|
75th Percentile |
0.67 |
0.56 |
The ratio of Max TR is consistently lower than that of TFR across all summary statistics. This may reflect the greater flexibility in Max TR compared to TFR, as Max TR includes variable components related to performance.
Role Distribution Analysis
The table below shows the most common executive positions that held the second-highest TFR and Max TR across the sample.
Table 4: Most Common Roles for Second-Highest TFR and Max TR
|
|
Second Highest TFR |
Second Highest Max TR |
|
BUH |
21 |
17 |
|
CEO |
1 |
0 |
|
CFO |
39 |
43 |
|
COO |
15 |
12 |
|
Other |
19 |
20 |
The pie charts show the distribution of roles holding the second-highest TFR and Max TR.
Figure 1: Role distribution for second-highest TFR
Figure 2: Role distribution for second-highest Max TR
For both second highest TFR and Max TR, most of the positions are CFO, BUH, and COO.
Board checklist:
1. Calculate the ratio of your second highest paid to the CEO.
2. Is the fixed pay ratio within the 1st and 3rd quartile of the market (at least within your sector)?
3. If yes, move to the 3rd highest paid and so on, to determine your bench strength for possible succession
4. If no, can the difference be explained by tenure, performance, or both?
5. If performance, what can you do to lift it? Do you need to change the incumbent?
6. If the reason is not readily apparent, consider leader traits. Are narcissistic qualities evident that the board needs to consider?