21/11/2006 - 21:00

Performance key for top earners

21/11/2006 - 21:00

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Million dollar salary packages are becoming increasingly common in Western Australia, WA Business News's fourth annual remuneration survey has found.

Performance key for top earners

Low-profile exploration company bosses Tony Poli and Darren Hedley have emerged from left field to become the most highly paid executives in Western Australia last financial year.

As Aquila Resources executive chairman, Mr Poli was awarded lucrative share options that lifted his total income to $6.6 million, while Australasian Resources chief executive Mr Hedley was awarded options that boosted his total income to $4.8 million.

That put them ahead of blue-chip chief executives such as Rio Tinto Iron Ore’s Sam Walsh, who earned $4.2 million, Woodside’s Don Voelte ($3.6 million) and Wesfarmers’ Richard Goyder ($2.6 million).

This year’s survey highlighted the widespread use of share options, which substantially boosted the total remuneration of many WA chief executives.

While the use of share options is commonly associated with small exploration and technology companies, which have limited capacity to pay large cash salaries, they have also been used extensively by the state’s biggest companies.

The survey found that many companies also paid substantial cash bonuses to reward their chief executives for short-term performance.

In some cases, like Rio’s Sam Walsh, Alinta’s Bob Browning and Euroz’s Peter Diamond, the annual bonus was about $1 million.

Another key finding was that the number of executives earning more than $1 million has continued to grow.

In all, 25 WA chief executives, 16 other executives and, most surprisingly, one non-executive chairman – former Deloitte partner and current Australasian Resources chairman Domenic Martino – earned more than $1 million last year.

The survey found that there was only a loose relationship between company size and total remuneration, mainly because many smaller companies made valuable options grants.

However there was a reasonably close link between company size and base income, which typically included salaries, superannuation and non-cash benefits such as motor vehicles.

Wesfarmers chief executive Richard Goyder had the highest base income in WA last year, $2.4 million.

He was followed by Rio’s Sam Walsh, Woodside’s Don Voelte, Minara Resources’ Peter Johnston and Alinta’s Bob Browning.

Another theme emerging from the survey was that most chief executives, but by no means all of them, enjoyed a substantial increase in total remuneration.

The enormous variation across the survey sample, and the distorting effect of share options, means there is limited value in calculating an average increase.

However, it is notable that about one quarter of chief executives experienced either a pay cut or no change in their total remuneration.

The man who really hit the jackpot last financial year was Mr Poli, who has been richly rewarded for many years of work in mineral exploration.

His company, Aquila, has been an investor favourite over the past five years as it progresses the development of a range of coal and iron ore projects in Australia and southern Africa.

The signing earlier this year of an exploration venture with Brazilian mining giant CVRD was a major milestone.

Mr Poli’s total income last year comprised a cash salary of $297,000 and share options worth a massive $6.3 million.

That was far outweighed by the windfall profit he obtained when he exercised 12.5 million options that were issued in 2000 when he floated Aquila.

Mr Poli was able to buy 15.1 million shares at a fraction of the current market price, delivering an instant book profit of $72 million.

Australasian is one of the growing number of companies hoping to share in the current iron ore boom.

It has acquired an interest in iron ore tenements in the Pilbara and is pursuing negotiations with Chinese interests, but is still a long way from proceeding with a mine project.

Mr Hedley was granted options worth $4.5 million while Mr Martino was granted options worth $3 million.

That led to the extraordinary situation where option issue expenses of $8.1 million were the biggest expense incurred by Australasian last financial year.

Samson Oil & Gas, Salinas Energy, Paladin Resources and Victoria Petroleum were other mining and exploration companies that granted valuable options last year, enabling their chief executives to earn more than $1 million last year.

Technology companies did not feature prominently in this year’s survey, reflecting the loss of investor support for most technology stocks.

However, pSivida chief executive Gavin Rezos and QRSciences Kevin Russeth still earned more than $1 million after benefiting from bonuses and share options.

Most companies put a big focus on developing remuneration schemes that link executive income with the results achieved by the company.

Big companies such as Wesfarmers and Woodside have developed highly sophisticated remuneration schemes have been developed.

Wesfarmers executives are judged each year on financial performance, such as group net profit, divisional earnings and return on capital, and non-financial performance, including safety.

Wesfarmers, like a few other companies, has started to disclose the annual performance of its senior executives.

Home improvement division chief operating officer Peter Davis was the top performer, earning 55 per cent of his potential bonus.

Wesfarmers also pays long-term bonuses based on the company’s return on equity relative to the 50 largest companies in the S&P/ASX 100 index.

In addition, it has a special scheme for its three executive directors using a measure called total value return.

Companies that appointed a new chief executive provide a good insight into some of the key remuneration trends.

WA Newspapers chief executive Ken Steinke’s package is based on a salary of $800,000 per year.

He can earn a short-term bonus of up to 75 per cent of his salary and a long-term incentive, to be paid as shares, that is also worth up to 75 per cent of his salary.

The long-term incentive is based on the company’s total shareholder return and its earnings per share.

Gindalbie Metals provided a good example of a typical salary package for an emerging mining company.

Its new chief executive, Garrett Dixon, will be paid $500,000 and was granted 2.5 million shares with an exercise price of 60 cents per share, compared with the current market price of about 50 cents.

That means he will be rewarded only if the market price increases to more than the exercise price.

Home Building Society’s new chief executive Greg Wall, who previously ran StateWest Credit Society, has been employed on a $400,000 package, with the potential to earn up to $120,000 in bonuses each year.

While there has been a significant tightening of regulation surrounding the disclosure of executive remuneration, there is still substantial variation in disclosure practices.

Some companies, including WA Newspapers and Iluka, provided details of the remuneration package of new chief executives soon after they were appointed.

Others waited until their annual report was released.

And others, like GRD and Integrated, have chosen to not provide full details in their annual reports, even though their new chief executives took up the role early this year.

Woodside took disclosure to a new level.

Chief executive Don Voelte earned total remuneration of $3.6 million in the year to December 2005 and the annual report disclosed that he was likely to earn $4.8 million in the 2006 financial year, helped by an increase in his base salary and a $1 million discretionary bonus.

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