Crisis not reflected in executive pay slips

AS Australia tentatively emerges from the ruins of the global financial crisis, executive pay largess has been roundly vilified.

The system that remunerates the country’s business hierarchy is in a state of flux, as legislators contemplate a series of changes designed to ‘out’ excessive pay packets.

Yet, in actual dollar terms, little has changed for Western Australian-based executives during what was supposed to be the second year of widespread pay restraint.

Pay packets have shrunk only marginally and there is little evidence to suggest changes to pay structures made thus far will rein in remuneration during the coming years.

WA Business News’ annual salary survey shows that 58 executives at WA companies earn a salary of more than $1 million, after all manner of incentives and bonuses are thrown in.

The results are in keeping with the survey undertaken 12 months ago, with the figures showing the state’s top executives have taken the mildest of baths.

The marginal pay decreases are out of sync with the share price woes suffered during the past couple of years, debunking any notion that remuneration is firmly tied to the performance of company stock for the majority of executives.

Executives at the usual suspects – Wesfarmers, Woodside Petroleum and Paladin Energy – head WA Business News’ salaries tables, with Wesfarmers chief Richard Goyder leading the pack.

Mr Goyder’s total remuneration increased by $3 million to $8.1 million, as the state’s biggest listed company increased its net profit, but suffered a substantial share price fall.

Some of the interesting pay information lies hidden behind the headline salary figures.

The headline $US327,000 ($356,000) earned by Rio Tinto’s Perth-based head Sam Walsh isn’t enough to lift him onto the top 100 highest paid listed company executives in the state, even though in past years a combination of record profits, the Chinese resources appetite and takeover activity has lifted the iron ore boss’ pay package to several million dollars.

His total remuneration recorded in the most recent annual report is very low because his salary ($1.3 million), share options ($US783,000) and various other benefits are largely offset by a negative valuation of $2.6 million attributed to shares awarded under Rio’s Mining Companies Comparative Plan caused by the falling Rio share price in the past financial year.

At first glance, Aquila Resources executive chairman Tony Poli appears to have taken a massive slide down the salary table after ranking near the top last year (this year he is outside the top 100 paid local executives).

But an analysis of annual reports shows last year more than 90 per cent of Mr Poli’s remuneration consisted of options included in a long-term incentives scheme, taking his total income to more than $6 million.

The options have vested, leaving the chairman with a more modest headline pay packet for the current fiscal year of just more than $550,000.

While the vesting of options accounts for some of the significant changes in the tables, the collapsing of companies accounts for others.

Most notably, John Young and Cameron Rhodes of failed agribusiness provider Great Southern farewelled their million-dollar plus pay packets along with the value of their own private stakes in the fallen company.

Hirings and firings accounted for several other changes to the executive pay list, with former WA Newspapers chief Ken Steinke, who received a $1.9 million termination payout, dropping off the list.

His replacement, Chris Wharton, received $502,066 in his first six months in the job, which indicates his cash salary (not including incentives) is comparable with that of his predecessor.

Companies that showed executive salary restraint were applauded in the marketplace. The combined incentive payments for executives at Henderson-based ship builder Austal were down 36 per cent, according to the Australian Shareholders’ Association, reflecting the financial performance of the company.

Some executives pick up their pay packets from several addresses, with Kagara executive chairman Kim Robinson one of the more prominent businessman to hold multiple positions (he is non-executive chairman at Apex Minerals and Carbon Energy).

Mr Robinson earns $715,000 at Kagara, while his remuneration packages at Apex and Carbon largely consist of options.

Local corporate raider Farooq Khan also picks up multiple pay packets, which have traditionally lifted his annual salary to more than $1 million.

Amid international condemnation, and with much of the blame for the financial crisis sheeted home to ‘exorbitant’ executive salaries, the Productivity Commission launched an inquiry into executive pay.

The issue is being hotly debated, highlighted by the fact that the commission attracted 105 initial submissions, including a 12-part 148-page submission from the Australian Institute of Company Directors.

There are also 61 (and counting) post-discussion submissions.
A draft report indicates the commission will not recommend that remuneration be subject to salary caps or prescriptive regulation, which it concludes would be unworkable and have harmful economic impacts.
Instead, the draft signals a greater focus on corporate governance and engagement with shareholders, including a 'two strikes, you're out' policy, which would hand significantly more power to shareholders.
The draft proposal says that, where a company's remuneration report receives a 'no' vote of 25 per cent or higher, then the board would be required to report back to shareholders in the subsequent remuneration report explaining how shareholder concerns were addressed and, if they have not been addressed, the reasons why.
If a company's subsequent remuneration report receives a 'no' vote above a prescribed threshold then all members of the board would be subject to re-election. A final report is to be handed over to government in the second half of December.
Engineering and construction group Clough is among a handful of companies Australia-wide to record protest votes of above 25 per cent in the past few months.
The board received a protest vote of 36 per cent signalling discontentment with its remuneration report, which included a large relocation allowance for Texas-based chief operating officer Bill Boyle.
Clough chief John Smith is among the state's highest paid executives with a total package of $2.8 million.
Shareholders this year supported Wesfarmers' remuneration report after being voted down 12 months ago.