13/07/2016 - 14:49

Business takes creative approach to CEO packages

13/07/2016 - 14:49

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Chief executive salaries in WA are continuing to ratchet down, and companies are seeking more flexibility, a study of nearly 30 new appointments this year has found.

TOP DOLLAR: Tom O’Leary’s base salary is among WA’s highest. Photo: Iluka Resources

Chief executive salaries in WA are continuing to ratchet down, and companies are seeking more flexibility, a study of nearly 30 new appointments this year has found. 

Iluka Resources’ new chief executive, Tom O'Leary, has joined the ranks of Western Australia’s highest-paid chief executives, though the company will save money on his predecessor’s remuneration level.

Mr O’Leary, who took up his role last month, will be paid total fixed remuneration of $1.4 million, compared with the retiring David Robb’s $2 million.

Only five WA chief executives are on a higher base salary than Mr O’Leary, according to the BNiQ search engine.

These are Wesfarmers boss Richard Goyder, Woodside Petroleum’s Peter Coleman, Fortescue Metals Group’s Nev Power, South32’s Graham Kerr, and Seven Group HoldingsRyan Stokes.

This listing highlights the tendency for larger companies to pay highger salaries, though the accompanying table shows the relationship does not always hold.

Like most executives, Mr O’Leary’s total income will be determined by his incentives.

In his old job, as managing director of Wesfarmers’ chemicals, energy and fertilisers division, his base pay was $1.1 million (in 2015).

On top of that, Mr O’Leary was paid a cash bonus of $630,000 and earned share-based payments of $991,000.

To compensate Mr O’Leary for long-term Wesfarmers incentives he will forego, he will be granted share rights at Iluka worth a total of $3.3 million.

In addition, he will be granted share rights worth $1.7 million under Iluka’s long-term incentive scheme.

Ship builder Austal has taken a different approach to align new chief executive David Singleton’s remuneration with the interests of shareholders.

Thirty per cent of his fixed remuneration, of $1.05 million per year, will be paid in Austal shares.

The same structure had applied to his predecessor, Andrew Bellamy, though from the start of 2015 he was paid entirely in cash.

A fairly consistent pattern in remuneration packages is that larger companies offer bigger incentives.

For instance Mr Singleton’s annual bonus can be up to 100 per cent of his fixed remuneration.

By comparison, NRW Holdings boss Julian Pemberton and Southern Cross Electrical Engineering’s Graeme Dunn have a maximum annual bonus equal to 50 per cent of their base salary.

NRW and Southern Cross have also cut their base salaries to reflect the tough times for contractors.

Mr Pemberton’s salary was cut by 39 per cent this year to $800,000, while Mr Dunn is on a salary of $650,000, about 20 per cent lower than the amount paid to his predecessor.

Mining companies have taken similar steps.

Medusa Mining’s new chief executive, Boyd Timler, is on a base salary of $550,000; his predecessor Peter Hepburn-Brown was paid $728,102 in his last full year in the job.

At the smaller end of the market, Indiana Resources (formerly IMX Resources) is paying Campbell Baird a base salary of $150,000 (plus superannuation).

In his previous role at Focus Minerals, Mr Baird was paid a salary of $379,000 in his last full year in the job (2012).

In a relatively unusual move, Mr Baird will also get a $75,000 sign-on bonus, to be paid in shares.

Several companies have tied remuneration to specific project goals.

Gindalbie Metals, for instance, is on the lookout for new opportunities to offset the losses at its part-owned Karara iron ore project in the Mid West.

Therefore, as well as paying new chief executive Chris Stevens a base salary of $280,000, he has been offered a cash bonus of $100,000 if he completes a ‘material’ transaction in line with board strategy.

MacPhersons Resources has a variation on that theme, linking the remuneration of its new chief executive to progress on project development.

Jeffrey Williams will be paid only 70 per cent of his base salary, of $250,000, until MacPhersons’ board approves a development project.

Similarly, KIN Mining has tied chief executive Don Harper's income to completion of a feasibility study and certain production and cost targets.

If all goes to plan, Mr Harper will be paid $100,000 in cash and $200,000 in performance rights, on top of his $270,000 annual salary.

Other companies have devised remuneration structures that afford considerable flexibility.

Swift Networks managing director Xavier Kris will be paid $190 per hour (plus GST) for at least 86.67 hours per month, equating to at least $197,607 per year.

In addition, Mr Kris can earn up to a further $10,000 per month, implying his annual income could be as high as $317,604.

At Black Ridge Mining, chief executive Trent Spry will be paid a consultancy fee at a rate of $800 per day.

Strandline Resources has agreed to pay Tom Eadie $171,000 for working three days per week, with extra work paid at $1,000 per day.

One of the few chief executives to get a pay rise last year was Singapore-based migme boss Steven Goh, whose base salary has been increased to $S350,000.

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