Contractors slow to respond on pay

There is very weak correlation between remuneration levels at WA’s major contractors and the performance of their underlying businesses.

The past decade has been a good period for contractors servicing the mining and petroleum sectors, and it has resulted in a ratcheting up of chief executive salary levels.

Now that the sector has slowed, however, there has been very little adjustment in salary levels, according to a BNiQ survey of 18 contractors based in Western Australia.

Some of the highest-paid executives lead businesses that have delivered poor returns in recent years and shrunk substantially in size.

Conversely, some of the best performers continue to receive relatively moderate pay.

NRW Holdings chief executive Julian Pemberton is one of the best-paid contractors in WA, with a base salary of $1.3 million and total income of $1.7 million last financial year.

That is despite the civil and mining contractor delivering total shareholder returns (TSR) of -26 per cent over the three years to June 30.

The loss of investor support for NRW resulted in the company’s market value slumping to just $106 million last week.

It’s a similar story at mining contractor Macmahon Holdings, which paid chief executive Ross Carroll a base salary of $1.1 million.

In terms of total remuneration, the best-paid chief executive was RCR Tomlinson’s Paul Dalgleish, who earned $2.8 million last financial year.

This included a cash bonus of $803,000 and equity grants valued at $877,000.

The high income stems from the package Mr Dalgleish negotiated in 2009, when he was recruited to improve the performance of the ailing engineering and construction contractor.

The package included the granting of 8 million 39-cent share options, which have become seriously ‘in the money’ as RCR has lifted its trading performance and returns to shareholders.

Over the three years to June, RCR has delivered an average TSR of 40 per cent.

Mr Dalgleish was also awarded a 5.7 per cent increase in fixed remuneration last September to $950,000, in recognition of the increased size and complexity of the company and ‘to maintain alignment with peer companies’.

Mineral Resources chief executive Chris Ellison was also awarded a substantial pay rise last year, up 11.8 per cent to $950,000 as a result of a ‘market-based comparative data review’.

The company has delivered an average TSR of 34.5 per cent over the past five years and has a market cap of $1.4 billion, ranking it among the state’s top 10 companies.

The big pay rise did not extend to Mineral Resources’ top managers, which got an average increase of just 1.4 per cent, according to the company’s annual report.

Having been given a big pay rise, Mr Ellison chose to return his 2014 bonus entitlements, totalling $527,000, on the basis this was ‘an appropriate course reflecting the deteriorating economic conditions’.

This meant his total income for the year was $1.4 million, not the $1.9 million stated in the annual report.

Engineering and construction contractor Monadelphous Group is another consistently strong performer, with a market cap of $785 million (second only to Mineral Resources among the contractors).

Its three-year TSR has averaged just 1 per cent, which looks pretty ordinary until you realise only three other contractors have delivered a significantly better return.

Despite a long record of profitable growth, Monadelphous has never ranked at the top of the pay scales.

Chief executive Rob Velletri was paid a base salary of just less than $900,000 last financial year, well below some much smaller contractors.

Monadelphous did not pay annual bonuses to any of its directors or key executives last financial year

Many other companies trimmed their bonuses but only a few canned them altogether.

Mr Velletri’s total remuneration was boosted to $1.3 million by a package of incentive options that vested during the financial year.