Breaking down the pay packet – salary versus incentives

Business News’ annual remuneration report shows how incentives drive the country’s top earners.

Defining an effective remuneration policy and attracting the right team is crucial to the long-term success of any company, from start-ups to major corporations.

Beginning with the base salary, which is applied with the expectation that the executive or employee will get the job done, bonuses and incentives act as the carrots that motivate the recipients to meet specific targets or to go above and beyond.

While no two companies are the same and each should determine its remuneration packages on its own merits, understanding market practice and what your competitors are offering will help to educate your decisions.

At a glance, the 2020 Business News Remuneration Report will give boards, executives, their advisers and recruitment professionals a guide to remuneration across the ASX.

It includes snapshots for 24 industry segments, broken down by key roles and market capitalisation, including the remunerations of the top 10 earners for each industry.

It is the first year the report has expanded beyond geographical constraints to present data from a national perspective. 

Spotlight on incentives

The report shows that of the 231 individuals identified by industry segments, 184 received a total remuneration in excess of $1 million, with 164 receiving annual incentives in excess of $500,000.

Of the 24 industries specified, the medium total remunerations for chief executives across banks, food and staples, insurance, and transportation were in excess of $1 million.

The medium total annual incentive packages for chief executives working for banks, food and staples and insurance were also the highest of the industry segments, in excess of $500,000.

The survey also shows that for the top 10 earning executives on the ASX, their bonuses accounted for between 84 and 99 per cent of their total remuneration.

Of the top 10 paid executives on the ASX, eight were among the top 10 in the country to receive the largest bonuses.

Buy now pay later firm Afterpay, chief executive Luke Bortoli was at the top of both lists, receiving a total remuneration of $31.6 million, with 99 per cent of that attributable to incentives.

Emeco Holdings managing director Ian Testrow was Western Australia’s highest paid executive for the second consecutive year.

His total remuneration was $9.9 million, including $8.1 million in long-term equity incentives.

Striking the balance

While the goal of competitive remuneration is to attract top quality candidates and ensure productivity among executives and staff, executive packages must remain commercial.

As highlighted in this year’s Business News Remuneration Report by BDO managing director Allan Feinberg, the challenge today is offering a competitive package that creates long-term value.

Understanding your business within the context of the general market is fundamental to striking the right balance between salary and the appropriate incentives such as bonuses, profit sharing and stock options.

Mr Feinberg notes, what happens too frequently is boards revert to general market practice by implementing a large short-term incentives plan that rewards annually, and a long-term incentive plan which is too large and hard to grasp.

This approach achieves a heightened level of comfort for executives, allowing them to exit the business with bonuses before their decisions have played out.

The recommended approach on the other hand, is getting enough skin in the game.

While this is not to say an LTI plan with hard-to-reach benefits is the solution, it suggests giving executives a piece of the business as a means to reap the rewards of future successes

Ultimately, executives, the company and its shareholders should be making money in unison. 

Purchase this year’s Business News Remuneration Report to access further insight and data into Australia’s major industries and top earners.