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Value across the pay spectrum

WESFARMERS managing director Michael Chaney has achieved a rare double in WA Business News’ annual salary survey.

Not only is Mr Chaney the State’s most highly paid chief executive, he is also ranked as the best value for money.

He took home $5.7 million last financial year, more than twice as much as the next most highly paid chief executive in WA (see table on page 17).

At a national level, this made Mr Chaney Australia’s sixth highest paid chief executive (excluding those who received retirement payouts).

To find out whether Mr Chaney and the State’s other chief executives provide value for money, WA Business News ranked their remuneration against a range of performance measures.

The analysis involves a degree of subjective assessment, and also recognises there is no single measure of value for money.

Emerging at the top of this analysis are six executives linked by their ability to deliver value for money for their shareholders.

They include three mining industry veterans whose companies are producing top results after many years of hard work – Jubilee Mines’ Kerry Harmanis, Arc Energy’s Eric Streitberg and Equigold’s Nick Giorgetta.

The top performers also include Alinta’s Bob Browning and Foodland’s Trevor Coates.

Mr Chaney was ranked at the head of this list on the following basis.

Wesfarmers has produced total shareholder returns (capital growth plus dividends) of 31 per cent a year over the past three years. This puts it in the top quartile of returns for WA’s top 50 companies, according to the 2003 Trudo WA Business News TSR Survey.

Its net profit rose an impressive 30 per cent last year to $538 million.

Mr Chaney’s total remuneration is just 1.07 per cent of Wesfarmers’ annual profit – lower than for any other top 50 company.

His fixed remuneration ($3.1 million) is equal to just 0.03 per cent of Wesfarmers’ market capitalisation at June 30 – the second lowest level for any top 50 company.

Mr Harmanis also ranked well on most of these measures.

Jubilee’s TSR over the three years to June 30 was 23.6 per cent and since then its share price has doubled to more than $4.

Mr Harmanis’ executive remuneration ($588,000) was equal to just 1.2 per cent of Jubilee’s net profit ($48.4 million).

To put this in context, CEO remuneration at many other top 50 companies equals 5 per cent or 6 per cent of net profit.

Arc Energy managing director Eric Streitberg was paid $190,000 last year, making him one of the least expensive chief executives among WA’s top 50 stocks.

In fact, some of the staff earned more than their boss did.

General manager Derrick O’Keeffe, who joined Arc Energy last year, received a substantially higher salary than Mr Streitberg – $240,000.

Arc has a three-year TSR of 58 per cent and its net profit rose last year to $8.8 million following development of its first two oil fields in WA. Mr Streitberg’s remuneration was equal to just 2.1 per cent of net profit.

Gold producer Equigold, which has two mines in Australia and is developing a third mine in Africa, is unusual in the current environment because it does not pay performance-based bonuses.

“We’ve never found that we’ve needed all these incentives for people to perform,” managing director Nick Giorgetta said.

“I’ve always been of the opinion that you draw a salary and that should be sufficient.

“Or you can draw a minimal salary and have some bonuses.

“It should be one or the other.”

Mr Giorgetta’s total remuneration last year was $359,700, equal to 2.8 per cent of last year’s increased net profit of $12.5 million.

There is an important qualifier to these results.

Messrs Harmanis, Streitberg and Giorgetta are also major share-holders and benefit from the rising share price of their companies.

In the case of Jubilee and Equigold, the chief executives also benefit from increased dividends.

Mr Harmanis, for instance, would have received about $6 million in Jubilee dividends last year.

Mr Coates has presided over the successful expansion of Foodland in New Zealand and the eastern States since he joined the company nearly three years ago.

His success is reflected in the company’s outstanding TSR of 45 per cent per annum over the past three years.

Mr Coates’ total remuneration of $1.9 million makes him the State’s second highest paid chief executive (excluding Woodside’s John Akehurst, who retired this year).

But his income is equal to just 1.6 per cent of last year’s net profit, rating him highly in value for money terms.

Another transformational chief executive is Alinta’s Mr Browning, who has turned the WA gas utility into a significant player in the national energy industry.

His total remuneration last year was $1.31 million, equal to 2.2 per cent of the company’s net profit.

Alinta’s share price has risen by about 50 per cent over the past year and the company, with support of brokers, expects to deliver higher profits in future.

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