In the second of this year’s quarterly series on executive remuneration, we find one conspicuous exception to the tighter salary packages on offer.
In the second of this year’s quarterly series on executive remuneration, we find one conspicuous exception to the tighter salary packages on offer.
Not many people are getting pay rises in the current market, so local contractor OTOC has gone against the grain in awarding a 29 per cent salary increase to its chief executive, Adam Lamond.
Mr Lamond's pay rise has bucked the trend of high-profile companies cutting chief executive remuneration.
The most notable example was BHP Billiton, which announced last month new chief executive Andrew Mackenzie would be paid an annual base salary of $US1.7 million, down from the $US2.2 million paid to his predecessor, Marius Kloppers.
Mr Mackenzie’s superannuation entitlement (25 per cent of base salary) and his short-term incentive scheme (up to 240 per cent of base salary) are also less generous than for Mr Kloppers.
BHP Billiton chairman Jac Nasser said the board believed that “some downward rebasing” was appropriate but added that the package “does not compromise our need to motivate a high level of performance”.
In other words, the board has a very flexible view when it comes to appropriate incentives, which are often cited by companies to justify their bonus schemes.
On the very same day as BHP Billiton’s announcement, Perth company Tap Oil made a similar release.
Its chief executive, Troy Hayden, has signed a new employment contract that included a 23 per cent cut to his base salary to $500,000 (from $650,000) and the waiving of his rights to a short-term bonus.
The upside for Mr Hayden comes from the awarding of 5 million performance rights, which will vest in 2016 if the company’s share price exceeds certain targets.
“The board believes this more strongly aligns Troy’s remuneration with the company’s commitment to deliver material shareholder returns,” chairman Doug Bailey said.
Programmed chief executive Chris Sutherland has also signed a new employment agreement but with only minor changes to his remuneration.
Mr Sutherland’s base salary increased 4 per cent to $885,000, which would put him in the top 30 highest-paid chief executives in the state when ranked by base salary.
His salary is commensurate with Programmed’s relatively large market capitalisation ($284 million), though as the table shows, there is a very poor correlation between market value and CEO salaries.
There is also a weak correlation with other performance measures, such as total shareholder return.
OTOC, for instance, has a market value of just $9.7 million and a TSR of minus 34 per cent in the year to June 2012, yet its chief executive (and major shareholder) is now paid a base salary of $485,000 (inclusive of superannuation).
The company issued a brief statement announcing Mr Lamond’s new package but did not actually explain the pay rise.
It also announced that Mr Lamond would qualify for a short-term bonus of up to $100,000, if the company achieved earnings before and tax of $10.8 million for the year to June 2013.
The disclosure of specific performance targets is a rarity; most listed companies disclose little, if any, detail about the actual targets on which CEO performance is judged.
In many cases, they are also very scant when it comes to disclosing incentive and bonus schemes.
Gold producer Noble Mineral Resources, for instance, announced last week the appointment of Craig Dawson as the company’s chief executive.
Mr Dawson will be paid a base salary (inclusive of super) of $545,000. Beyond that, the company simply disclosed that he might be granted share options and might participate in incentive plans and bonus schemes. Shareholders will have to wait for further details to be disclosed.
For most newly appointed chief executives, the big upside rests with the equity they have been awarded.
US-focused oil stock Sun Resources has awarded new CEO Govert van Ek 30 million share options, while Mid West iron ore company Quest Minerals has awarded Gino Vitale 30 million performance rights.
Mr Vitale has an unusual salary structure. He will be paid between $12,500 and $25,000 a month, depending on project commitments.
