New target for remuneration

For most workers, an annual bonus is something that might be paid in a good year.

But for chief executives at Western Australia’s largest companies, it has become an expected and integral part of their annual income.

Wesfarmers acknowledged that trend when it unveiled the salary package for its incoming managing director, Rob Scott, who will succeed Richard Goyder in November.

There are multiple components to Mr Scott’s total package, which has a large portion paid in shares rather than cash.

The most important number was Mr Scott’s ‘target’ remuneration.

This comprises fixed annual remuneration, inclusive of superannuation, of $2.5 million plus an annual bonus of $5 million if he achieves ‘target’ performance levels.

This means Mr Scott can reasonably expect to earn $7.5 million per year, if he achieves the performance goals agreed with the board.

If he exceeds the agreed performance goals, Mr Scott will be able to earn a further bonus of $2.5 million, taking his total income to $10 million.

While these are eye-popping numbers for most people, they are substantially less than Mr Goyder’s remuneration.

Mr Goyder’s base salary is $3.5 million and his target remuneration is $10.5 million.

Chairman Michael Chaney said the new package was in line with contemporary market practice.

“We recognise changes in the market that have seen downward pressure on fixed pay levels for CEOs and reductions in overall reward opportunities,” Mr Chaney said in a statement to the ASX.

In practice, Mr Goyder’s actual remuneration has usually come in a little below the target level, and last year it was substantially lower.

He earned about $9.6 million in the 2014 and 2015 financial years, while his income in FY16 fell to $5.5 million, after his bonus was slashed because of the poor performance of Wesfarmers’ coal mining and Kmart businesses.

The annual salary survey undertaken by Business News and published in the BNiQ Search Engine shows that some chief executives consistently qualify for large annual bonuses.

Woodside Petroleum boss Peter Coleman has been paid annual incentives averaging $2.6 million over the past five years, effectively doubling his base salary.

Similarly, former Automotive Holdings Group managing director Bronte Howson was paid annual bonuses averaging $1.19 million over the past five years, on top of his base pay of $1.23 million.

His successor, John McConnell, who has a base salary of $1.2 million, can expect similar payments.

If Mr McConnell achieves target performance this year, he will get a bonus of $1.2 million; and if he hits stretch targets, he will get up to $1.5 million.

In addition, he is entitled to long-term incentives.

It’s a similar story at mining company South32, where managing director Graham Kerr has fixed remuneration of $1.77 million.

His target remuneration includes a short-term incentive of $2.1 million and a long-term incentive of $2.2 million, delivering a total just above $6 million.

Boat builder Austal is not so generous.

If managing director David Singleton hits his performance targets, his annual bonus and will be 50 per cent of his $1.05 million base salary.

A major change at Wesfarmers will be the phasing out of cash bonuses; Mr Scott’s annual bonuses will be paid almost entirely in shares.

Half the shares will be subject to four-year performance measures and the other half will be subject to trading restrictions lasting up to six years. Other companies are moving in the same direction, though to a lesser degree.

At Woodside, Mr Coleman gets a third of his annual bonus in cash. Up until last year, it was two-thirds cash.

At South32 and AHG, annual bonuses will be split 50:50 between cash and shares. Austal pays its annual bonus entirely in cash, though, unusually, Mr Singleton gets 30 per cent of his base salary in the form of shares.