Judging value for money

Perth companies Monadelphous and Macmahon have a lot in common. They both service the booming resources sector, have about 3,000 staff, reported similar profits in 2006, achieved strong shareholder returns over the past three years, and have a similar market capitalisation.

Why, then, does Macmahon chief executive Nick Bowen earn five times as much as Monadelphous chief executive Rob Velletri?

Perth companies Ausdrill and Clough also service the resources sector and currently have almost the same market capitalisation.

So why does Clough chief executive David Singleton earn three times more than his Ausdrill counterpart, Ron Sayers?

Welcome to the challenge of judging value for money in the chief executive market.

On almost any measure, the long-serving Mr Velletri must be considered very good value.

Monadelphous is one of Western Australia’s top 25 companies when ranked by market cap, it has delivered total shareholder returns of 97 per cent a year for the past three years and lifted net profit last year to $29 million.

Despite these achievements, Mr Velletri’s total income last year was a modest $497,000. To put this in context, about 65 WA chief executives were paid a higher income last year.

By comparison, Mr Bowen was the sixth best paid chief executive in WA last year with total remuneration of $2.6 million. He is set for a higher income this year after the Macmahon board signed a new employment contract in December that lifted his base salary to $850,000.

Mr Bowen can earn a bonus of up to 100 per cent of his salary if he meets operational and financial targets.

He can also convert performance shares if Macmahon’s total shareholder return matches or exceeds eight other companies, including Monadelphous, Clough and Ausdrill.

Mr Singleton’s package is very similar to Mr Bowen’s.

It comprises a base income of $900,000, a bonus of up to 100 per cent of salary, and share options.

In practice, Mr Singleton has qualified for only a small portion of the bonuses and his options are largely worthless because of Clough’s continuing losses, but he still earns more than $1 million a year.

His remuneration package reflects the size and complexity of Clough, which has 3,500 staff around the world, turnover of more than $900 million, and crucially, the potential of the business if and when it gets on top of its contract problems.

Mr Singleton has delivered mixed results to date and Clough shareholders will be keen to see an improvement.

In contrast, Ausdrill shareholders should be very pleased with Mr Sayers, who earned a modest $328,000 last year.

The mining services company lifted revenue 56 per cent to $317 million while net profit was up 69 per cent to $19 million.