Top executives’ pay cheques a sign the state’s economy is back on the fast track

HOW do you tell whether the Western Australian economy really is booming again after the hiccups related to the GFC?

As reported by WA Business News last month, the state’s export revenues topped $83 billion last financial year, 4 per cent lower than in 2008-09 but still the second best result ever and representing a record 41 per cent of the national total.

In comparison, total Australian exports slumped almost 15 per cent, as the rising dollar and uncertain global conditions bit deep into the economies of the eastern states.

The reason, obviously, was resurgent Asian demand for raw commodities produced in WA, especially iron ore.

But if you are looking for insight into what that means in terms of personal wealth creation, a glance at the pay packets of WA public company executives confirms that revenue is flowing into directors’ pockets at an unprecedented rate.

WA Business News’ annual survey of executive salaries reveals that, in many ways, times have never been so good for the captains, lieutenants and even sergeant majors of local industry.

Millionaires on the rise

The data, based on the remuneration details of more than 3,000 WA-based public company executives and directors, reveal a big jump in the number of seven figure pay packets compared to previous years.

In all, 76 WA public company executives were paid $1 million or more in 2009-10, after including all incentives, share-based payments and other contributions.

That reflects a hearty 31 per cent increase on the previous year, when 58 local executives earned at least $1 million.

Underlining the state’s improving economic performance over the year, the joint earnings of the top 20 earners topped an impressive $87.1 million, $19.6 million of which was paid in cash as base salaries.

That compares to total combined earnings of just less than $62.1 million for the top 20 in 2008-09, equating to a 40.4 per cent increase year-on-year in 2010.

Intriguingly, the cash amount paid in base salaries for the top 20 was significantly higher in 2008-09 at $21.5 million.

Though the sample space is small, that variation is a very simple indicator of how things have improved generally for WA companies during the past year on the back of a resurgent resources sector.

Firstly, it would seem to reflect the generally weaker share prices of most WA companies when the impact of the GFC on the state was at its most severe in 2008-09, given the heavy weighting in most WA executives’ pay packages toward equity.

It would also seem to indicate the increasing confidence of local executives about the stronger outlook for both their companies and equity markets generally, with a growing proportion of their annual remuneration classified as being in the ‘at risk’ category.

To put the shift in clearer perspective, WA’s 20 best-paid executives received more than $48.1 million in share-based payments last financial year. That was over 14 times more than the $3.35 million in share-based payments made to the top 20 executives in 2008-09.

Such share-based payments can also be deceptive, as the recipient generally gets hit with a significant tax bill based on the options’ deemed value at the time of issue according to the-Black & Scholes valuation method, irrespective of whether they are actually ‘out of the money’.

But such concerns will be of little interest to most ordinary wage earners, amid growing hostility towards executive pay schemes widely considered excessive and out of step with societal expectations.

Following a damning inquiry by the Productivity Commission last year, Prime Minister Julia Gillard’s government has made legislative curbs on executive largesse a high priority, with draft laws due to be released for public comment next month.

That comes as the Australian Council of Trade Unions throws fuel on the fire, with its own newly released survey showing executive pay rose by an average of 17.2 per cent during the past year, compared to a 5.2 per cent rise for average wage-earners.

The ACTU survey also found that the average pay packet for a chief executive this year was $6.4 million.

Investor opposition to rising executive pay packets also continues to grow, with many companies reporting significant protest votes against the adoption of remuneration reports during this year’s annual meeting season.

Of course, such votes are non-binding and have led to little change at most companies since they were introduced three years ago, further exacerbating investors’ anger.

Big end of town

Not surprisingly, the general trend is that the biggest pay packets come with running the state’s biggest public companies.

But several relatively unknown company executives also feature on the best-paid list this year, while big dollars are not always reflective of strong company returns.

At the head of the best-paid list, Wesfarmers chief Richard Goyder and Woodside head Don Voelte switched positions from the previous year.

Woodside, which reports on a calendar-year basis, was the state’s second largest public company at the end of October with a market capitalisation of $31.8 billion, about $5 billion less than top-ranking Wesfarmers.

But Mr Voelte overtook Mr Goyder as the state’s best paid company executive, pocketing an extra $2.1 million to lift his total earnings for the 2009 calendar year to $8.34 million.

The rise came despite a flat year for Woodside on the production and earnings front, which left it with a disappointing one-year total shareholder return (TSR) of -0.2 per cent for the year.

Regardless, Mr Voelte stands a good chance of again topping the tables over the next couple of years, given his proposed retirement in the second half of next year, when he can expect to receive a significant golden handshake.

Down the road at Wesfarmers, Mr Goyder’s pay dipped slightly from $8.12 million to a still healthy $7.96 million, despite Wesfarmers generally beating analysts’ expectations about its ability to integrate and turn around the giant Coles supermarket business.

Wesfarmers profits rose 2.8 per cent to $1.56 billion in 2009-10, with an 80 per cent fall in coal division earnings offsetting a 30 per cent rise in non-resources profits. Consequently, WA’s biggest company generated a one-year TSR of 31.8 per cent.

Like Woodside, Rio Tinto also reports on a calendar-year basis, and its recovery from a disastrous debt-addled 2008 pushed its WA-based iron ore chief and executive director Sam Walsh to third on WA’s pay scales.

Mr Walsh slid outside the top 100 highest paid executives in last year’s survey after notionally earning just $356,000, mainly due to a negative $2.6 million valuation on shares awarded to him under the company’s executive share scheme.

But with iron ore markets back on fire for most of 2009, Mr Walsh’s total package soared to just less than $7.91 million as Rio shareholders rejoiced at a staggering one-year TSR of 172.5 per cent.

Other usual suspects from the big end of town to rank in the top 20 were Wesfarmers finance chief Terry Bowen, Paladin Energy chief and founder John Borshoff, Iluka boss David Robb, and departing Woodside finance chief Mark Chatterji.

New names emerge

But while most names in the top 20 would be familiar, this year’s survey also revealed the elevation of several of lower-profile newcomers.

Few would probably recognise the fourth and fifth highest-paid executives on the list, both of whom pocketed more than $6 million following their ascent to the board, and subsequent restructure, of Perth explorer Indago Resources.

Former stockbroker Tim Kestell and former merchant banker Peter Pynes successfully secured board seats at Indago in early 2009, shortly after the one-time uranium and base metals explorer had acquired the big Tusker gold project in Tanzania.

The pair subsequently spun the gold business out as Tusker Gold, which was promptly taken over for $80 million by joint venture partner Barrick Gold early this year.

They also engineered the sale of Indago’s African uranium holdings and North American nickel assets, to reshape Indago as a listed investment vehicle.

According to Indago’s annual accounts, Messrs Kestell and Pynes each received just less than $6.05 million for the year, notwithstanding Indago’s negative one-year TSR of 25 per cent.

Another relative unknown to make the top 10 this year was Coalspur Mines’ managing director Eugene Wusaty, who pocketed more than $3.55 million following the Canada-focused coal miner’s stellar market debut as manifested in a one-year TSR of 740 per cent.

The booming gold market resulted in PNG-focused Allied Gold executives Mark Caruso and Frank Terranova joining the list at seven and 15 respectively, while Galaxy Resources’ emergence as a major lithium producer lifted managing director Iggy Tan to number 13.

Automotive Holdings Group chief Bronte Howsen joined the top 20 at number 12, while Brockman Resources chief Wayne Richards’ success in advancing the Marillana iron ore project in the Pilbara put him on the list at number 17.

Another surprise in the top 20 was Elemental Minerals chairman Mark Jones, who pocketed $2.25 million as investors hunted for companies with potash assets in the wake of BHP’s $40 billion bid for Canada’s Potash Corp.