Qantas CEO Alan Joyce explains how the Australian airline is making more revenue per passenger than before the pandemic.
Video / NZ Herald
OPINION
Investors and fund managers will be glad to see that the average pay for the chief executives has fallen over the past year.
But the real test will come in the next 12 months when companies will face a much tougher operating environment as the economy slows sharply andpotentially enters recession.
Investors will be closely watching to see if company boards move the goalposts so they can still award their CEOs generous bonuses, even if their company earnings decline and don’t meet performance hurdles.
It’s what the Australian Council of Superannuation Investors (ACSI) calls the “everyone wins a prize” attitude.
Certainly, this attitude was evident this year in the data collected for ACSI’s latest CEO Pay in ASX200 Companies report. Among the CEOs of the top 100 largest companies in Australia, only one didn’t receive a bonus. The unlucky CEO was Qantas boss Alan Joyce, but he really wasn’t all that unlucky, as he was instead awarded a lucrative two-year retention equity allocation in FY22 which, at current share prices, will be worth around A$4.45 million if it vests.
This is quite an extraordinary statistic. If we take it at face value, it tells us that all of the chief executives of Australia’s largest companies put in sterling performances last year, which all merited extra pay on top of their multimillion-dollar salaries.
But of course, there have been missteps and poor performances by Australia’s corporate leaders. What the numbers really tell us is that CEOs get their bonuses no matter what, with either the performance hurdles set too low or the board deciding to award them even if they didn’t meet their targets.
The average realised pay for CEOs in the top 100 companies fell for the first time in the nine years ACSI has been measuring it. Realised pay is the value of cash and equity actually received by CEOs, as opposed to the statutory accounting valuations included in annual reports.
For Australian-based CEOs average realised pay was A$4.17 million, which still isn’t too bad.
The drop might be the result of several years of agitation by ACSI and the funds it represents and other investors for executive pay packets to be reined in.
In fact, the average realised pay for offshore-based CEOs of Australian companies was much higher at A$11.1 million, which ACSI puts down to the influence investors in Australia are starting to have over executive pay packets.
Greg Goodman of property company Goodman Group took home A$44,337,989, despite shareholder returns of negative 14.5 per cent. . Photo / supplied
The top earner was US-based Mick Farrell of Resmed, who picked up A$47,138,147 despite Resmed’s total shareholder returns – capital gains plus dividends - of negative 6 per cent in the period. And US-based Robert Thomson of News Corp pocketed A$35,153,533 despite shareholder return of negative 30 per cent.
Australian CEOs weren’t much better. Greg Goodman of property company Goodman Group took home A$44,337,989, despite shareholder returns of negative 14.5 per cent. The highest-paid woman, Macquarie Group’s Shemara Wikramanayake, took home A$17,565,615 but to her credit, total shareholder return was up 38 per cent over the year.
In fact, of the 20 companies with the top-paid chief executives, only four produced positive shareholder returns last year.
Sharemarket-listed companies in Australia are required to put their remuneration plans to shareholders for a vote at annual general meetings. Shareholders can’t actually force a company to ditch its plan with their vote, but if enough vote against a company’s remuneration plan for two consecutive years, it triggers a board spill.
No directors want to face re-election in such a scenario, so they usually listen to shareholders and this makes ACSI, which has members with more than $1 trillion in funds under management, extremely powerful.
“If performance is down in 2023, we expect to see bonuses follow. We don’t want to see companies changing the goalposts when they have a bad year,” ACSI said as it released the latest study.
Shareholders want to see that the remuneration of the chief executives of the companies they invest in is closely aligned with the returns they’re earning.
Pay in 2023 will be a major test for companies. If shareholders are feeling the pain of falling share prices and lower dividends thanks to the declining economy, they will want to see that the chief executives of their investments also feel that pain.
And companies risk wider reputational fallout if they are seen to hand bonuses or larger pay packets to CEOs at a time when people could be losing their jobs or struggling to keep their businesses afloat.
They will have to rethink their “everyone wins a prize” attitude as we head into the next 12 months.
There is a lot more at stake than there is at a game of pass the parcel at a children’s birthday party.
