23/04/2009 - 00:00

Increasing pressure on executive pay packets

23/04/2009 - 00:00

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ONLY 55 per cent of directors agree that their chief executive officer's remuneration package is appropriate, according to an Insync Surveys and Board Benchmarking study on remuneration.

Increasing pressure on executive pay packets

ONLY 55 per cent of directors agree that their chief executive officer's remuneration package is appropriate, according to an Insync Surveys and Board Benchmarking study on remuneration.

The study, which canvassed the views of 625 directors who sit on 79 different boards in Australia and New Zealand, found that 71 per cent agreed their chief executive was effective but only 44 per cent said that the performance appraisal of the boss was handled well.

The responses reflect growing community and shareholder sentiment that some chief executive salaries, bonuses and termination payments are excessive.

In a sign of mounting pressure as the big banks prepare for the upcoming bank profit season, Commonwealth Bank of Australia chief executive Ralph Norris said he would take a 10 per cent pay cut of his $3.12 million base salary from July 1.

The 10-person Commonwealth Bank executive committee is set to take a 5 per cent pay cut and reports suggest the Australia and New Zealand Banking Group is also expected to trim the pay of its top executives, possibly by the end of this week.

Last month, the Australian Shareholders' Association released its new policy on executive remuneration, which now prevents long-term incentives from being paid out to executives who haven't met performance criteria over at least four consecutive years.

ASA chairperson Helen Dent said the economic downturn highlighted the weak relationship between pay and performance.

"If a company was a recipient of a shareholder backlash on executive pay last year, and directors have failed to remedy the situation, the ASA will hold those directors responsible and vote against their election at the annual general meeting," she said.

ASA's policy goes further by requiring executives to hold a "meaningful portion" of any incentive earned in company shares for at least another two years, even if they leave the position.

The changes are designed to keep part of an executive's pay invested in the company in a bid to encourage them to make "more sustainable decisions about strategy, performance and their successor".

Perth accounting firm Ernst & Young has recommended a principles-based approach to the regulation of remuneration, rather than regulatory reform.

Ernst & Young partner Bruno Cecchini said while executive remuneration had sometimes been extravagant, a binding shareholder vote on remuneration was not the solution.

"We don't believe that a binding vote on remuneration quantum is appropriate because shareholders are not necessarily privy to the complex, and in some cases, commercially sensitive factors a board considers when determining the amount of remuneration it will pay its executives," he said.

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