02/12/2020 - 14:55

Take-home pay sheds more light

02/12/2020 - 14:55

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The statutory pay reported by listed companies tells only part of the story. Some companies also report ‘actual’ pay.

South32 boss Graham Kerr is well paid, but just how well depends on which measure you prefer.

His statutory remuneration, reported in accordance with Australian accounting standards, increased by 4.5 per cent to $7.3 million in the year to June 2020.

But Mr Kerr’s actual pay, also disclosed in the mining company’s annual report, plunged from $13.2 million to $3.2 million.

Both numbers are correct, they’re just based on different measurements.

(click here to view a PDF version of this special report)

Statutory pay is based on the accounting expense incurred by the company and must be reported in its annual report.

Actual pay measures the remuneration received by the individual and is therefore often a more meaningful guide as to how much people are paid.

In Mr Kerr’s case, both measures include his salary and annual bonus.

The crucial difference is that statutory remuneration includes the estimated value of share-based incentives, such as options and performance shares, that were granted during the year.

Actual remuneration, by contrast, only includes share incentives that have ‘vested’ during the year.

For Mr Kerr, $9.5 million worth of long-term incentives vested in FY19 but none vested in FY20, hence the big decline in his actual income.

Santos managing director Kevin Gallagher (based in Adelaide but he spent many years in Perth with Woodside) also had a very wide gap between the two measures.

His statutory pay was $US4.5 million, with just more than half comprising share-based payments that were expensed during FY20.

His ‘realised’ remuneration was much higher, at $US11.2 million, helped by long-term incentives worth $US7.3 million.

This represented his 2016 long-term incentive, which vested at the end of its ‘performance period’ on December 31 2019.

Vince Santostefano, who also joined Santos after many years in Perth with Woodside, had a similar pattern.

His statutory pay was $US1.4 million while his ‘realised’ remuneration was $US2.9 million.

That set Mr Santostefano up well for retirement; he left Santos in October and is back in Perth looking for board roles. 

Breakdown

Property developer Peet is another company to disclose both remuneration measures, albeit with different terminology.

Managing director Brendan Gore’s statutory pay fell to $1.4 million in FY20 while his take-home pay was lower, at $916,000.

Along with other members of Peet’s leadership team, his base salary was cut by 20 per cent for the months of May and June as the company grappled with the impact of COVID-19.

In addition, the entire leadership team failed to qualify for an annual bonus because of Peet’s poor financial performance during the financial year.

This was the first time since 2013 Mr Gore has not been paid a big annual bonus.

With a base pay of $937,000, large annual bonuses and large equity incentives nearly every year, Mr Gore has consistently ranked as one of Western Australia’s highest-paid executives, until now.

Other companies to report both remuneration measures included Fortescue Metals Group, Mineral Resources, and Regis Resources.

Fortescue chief executive Elizabeth Gaines’ statutory pay was $6.1 million while her ‘actual remuneration paid’ was much higher at $9.9 million, based on the value of share rights that vested during the year.

In contrast, MinRes managing director Chris Ellison’s statutory pay of $4.3 million was above his take-home pay of $3.7 million.

It was a similar pattern at Regis. Jim Beyer’s statutory pay was $1.3 million while his take-home pay was lower at $944,000

One company that bucked the trend toward extra disclosure was gold miner Northern Star Resources.

Its 2019 annual report, which had both measures, showed the actual remuneration for its senior executives was much higher than their statutory remuneration.

Executive chairman Bill Beament’s actual pay in FY19 was $5.1 million while his statutory pay was $3.2 million.

The difference was even wider in FY18:  $7.4 million versus $2.1 million.

Northern Star’s 2020 annual report disclosed just statutory remuneration, which for Mr Beament was barely changed at $3.1 million.

Within this total, there were big changes in the components of Mr Beament’s remuneration.

His base salary nearly doubled to $1.3 million while his annual performance bonus went from zero to $490,000.

These increases were offset by a big decline in Mr Beament’s long-term incentives.

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