08/12/2014 - 10:29

View from the top still good - SPECIAL REPORT

08/12/2014 - 10:29

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The tougher business climate has prompted some WA companies to cut executive salaries, but most have held the line and some have even awarded pay rises.

View from the top still good - SPECIAL REPORT
Richard Goyder took home WA's biggest pay packet in 2014

For more stories on our CEO Salary Survey see the Special Report, with several stories that analyse the executive salaries of more than 700 WA-based listed companies. There is also our new list of top CEO salaries.

THE big dollars aren’t as plentiful but there is still good money to be made working for a listed company in Western Australia, judging by the results of Business News’ annual salary survey.

Seventy-four Perth-based executives earned more than $1 million last financial year, down from about 90 in the previous year.

This included 15 executives with a risk-free base salary of $1 million or more.

In addition, a handful of executives were paid cash bonuses of more than $1 million.

The state’s highest paid executives are, not surprisingly, at the biggest companies.

Wesfarmers chief executive Richard Goyder tops the list with a reported statutory remuneration of $9.4 million – though as discussed below, the company questions this measure.

Woodside Petroleum chief Peter Coleman ($6.7 million) and Fortescue Metals Group’s Nev Power ($6.3 million) are next in line.

While the focus of this feature is on chief executives, some of the state’s best-paid executives lead operating divisions of global companies.

Andrew Harding and Jimmy Wilson, who head the iron ore operations at Rio Tinto and BHP Billiton respectively, are both on a base salary of $US1 million ($A1.2 million).

After adding in a cash bonus, non-monetary benefits and various share-based awards, Mr Harding had a total income of $US4.7 million.

That put him ahead of Mr Wilson, whose total remuneration was $US4.2 million.

Big companies such as Wesfarmers, BHP Billiton, FMG and Woodside have multiple executives earning more than $1 million.

Wesfarmers’ annual report discloses seven executives earning more than $2.5 million, with most based on the east coast and therefore not included in this feature.

At BHP, outgoing aluminium, manganese and nickel president, Daniel Malchuk, who is currently based in Perth, had total remuneration of $US3.2 million.

He has been promoted to a new role as president, copper, based in Chile from next year.

BHP’s former chief financial officer, Graham Kerr, is set to join the ranks of Perth’s best-paid chief executives.

Mr Kerr, who was paid total remuneration of $US4.6 million last year, is now based in Perth as chief executive-elect of BHP’s spin-out company, dubbed NewCo.

Pay cuts for some

While the big end of town employs most of Perth’s highly paid executives, it’s interesting to look at the smaller companies that sit near the top of the list.

The salaries paid by several companies seem to reflect the scale and profitability of their business in the past, not the tough times they now face.

Paladin Energy’s John Borshoff, for instance, remains one of the state’s best-paid chief executives, despite the miner being battered by the steep slide in uranium prices.

The Subiaco-based company has responded with major cost-cutting initiatives, and Mr Borshoff has contributed significantly to that – his salary has been cut by 32.5 per cent over the past two years.

Yet he is still paid a base salary of $1.4 million – a figure beaten by only four other chief executives in Perth, according to the BNiQ survey.

Coming in after Paladin are two contractors, NRW Holdings and Macmahon Holdings, both of which have been hit by the slowdown in the resources sector.

NRW, which has a policy of setting remuneration levels in the top quartile of its industry, “in order to attract and retain best-in-market individuals”, paid its chief executive Julian Pemberton a base salary of $1.3 million.

Macmahon wasn’t far behind, paying Ross Carroll a base salary of $1.1 million (see page 12).

Many companies, including Macmahon, cited the lack of pay rises last year to show their responsiveness to challenging market conditions.

In a similar vein, land developer Peet said chief executive Brendan Gore was entitled to an annual pay rise that at least matched the inflation rate, but for the past two years had elected to forego this entitlement.

Other companies, primarily junior explorers and mid-tier miners, have gone a step further and actually cut executive salaries and directors fees.

Two recent examples are iron ore miners BC Iron and Atlas Iron, which have both announced they are cutting directors fees in tandem with a reduction in the number of directors on their boards.

In the case of Atlas, it has cut directors’ fees and managing director Ken Brinsden’s salary by 15 per cent, with effect from the start of December (see page 16).

Pay rises for others

A small number of chief executives were awarded pay rises last year, typically after presiding over growth in the scale and/or profits of their business.

The big movers included Sirius Resources managing director Mark Bennett.

His base salary went up from $410,231 in 2012-13 to a new package of $785,000, reflecting the growing size and complexity of the company’s operations as it moves ahead with development of its Nova nickel project.

Contractors Mineral Resources and RCR Tomlinson also awarded pay rises (see page 12).

Automotive Holdings Group awarded chief executive Bronte Howson a 4 per cent pay rise last year, after saying his remuneration package had been flat since 2010.

More significantly, it foreshadowed an 11.7 per cent increase in the current financial year, to compensate for inflation and in recognition of the company’s growth.

The pay rise will be in two parts; Mr Howson’s base salary is up 10 per cent to $1.26 million and the balance will be in the form of short-term performance rights.

Annual bonuses

Like many chief executives at big companies, Mr Howson has an incentive scheme that enables him to double his income if he achieves his target performance goals.

If he achieves his stretch goals, the financial boost is even larger.

His performance is judged on a range of financial and operational metrics, but like other companies, AHG does not specify exactly what his goals are.

Looking back at last financial year, Mr Howson fell short of his performance targets but was still paid $946,000 in short-term bonuses (he would have been paid an extra $376,000 if he had met his targets).

He was not alone is getting a big bonus payment last year.

Wesfarmers, Woodside and other big players continued to reward their chief executives with performance-linked bonuses.

Some smaller companies, such as Peet, engineering contractor RCR Tomlinson and engineering form Neptune Marine Services also awarded big bonuses.

Most companies paid lower bonuses last year, reflecting their weaker results.

Contractor Monadelphous did not pay any bonuses, despite delivering a solid profit.

Mineral Resources chief Chris Ellison chose to hand back his 2014 bonus, worth $540,000, on the basis this was “an appropriate course reflecting the deteriorating economic conditions”.

What’s the real number?

There is an emerging trend for listed companies to distinguish the ‘real’ income of their chief executives from the ‘statutory’ income they are required to disclose under Australian accounting standards.

WesfarmersMr Goyder, for instance, had total reported remuneration of $9.4 million.

The company said this included ‘accounting charges’ in relation to unvested performance rights and share entitlements.

Excluding them, his remuneration was $5.7 million, comprising base salary, non-monetary benefits, superannuation and annual cash bonus.

Similarly, Paladin Energy presents an alternative valuation for its chief executive’s remuneration.

The ‘cash value of earnings realised’ by John Borshoff was $US1.4 million – this measure comprises cash salary, superannuation, cash bonuses and the value of long-term equity incentives that ‘vest’ during the year and result in shares being issued. (The latter items did not apply in FY14.)

His statutory income was substantially higher at $1.7 million, because it includes the estimated value of share rights granted to Mr Borshoff.

Paladin said the value of these share rights may or may not be realised, because they are dependent on the achievement of certain performance hurdles.

Land developer Peet adopted a similar approach when it presented what it called the ‘take home’ pay of its directors.

Managing director Brendan Gore’s ‘take home’ pay was $2.8 million, including a cash bonus ($911,000) and the value of shares issues after the vesting of performance rights ($954,000).

His statutory pay was higher at $3.3 million, after including all performance rights granted (worth $1.45 million).

The statutory approach can lead to the unusual situation where chief executive remuneration can be reduced, because options are forfeited or performance rights are revalued.

ASG Group chief executive Geoff Lewis is a case in point.

His ‘take home’ pay was close to $1.2 million, yet his statutory pay was $151,000 lower because he forfeited options during the year.

Automotive Holdings Group’s Mr Howson also had a negative item in his pay report, after the company revalued his long service leave entitlement.

That bumped $130,000 off his statutory pay, which amounted to $2.3 million.

Incidentally, the UK listings of Rio Tinto and BHP Billiton mean they are required to present yet another measure of remuneration for their chief executives, which last year was higher than the number thrown up by Australian accounting standards.

BHP’s Andrew Mackenzie, for instance, earned $US7.1 million according to Australian standards but $US7.9 million according to UK requirements.

It was similar for Rio’s Sam Walsh, who earned $US9.2 million under Australian standards and $US10.1 million under UK standards.

Performance

Looking back at last year’s salary survey provides a telling reminder that paying big dollars does not guarantee good results.

Sitting at number 10 on the list of best-paid chief executives was Forge Group’s David Simpson, who enjoyed total remuneration of $2.9 million for the 2013 financial year.

Forge is no longer, after the fast-growing engineering and construction contractor fell into administration.

 

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