Small victory for Australian investors as fat cats start to cut cream

By GILES PARKINSON

The Melbourne business establishment has heard the voices and caught the mood of the investing public. If you don't deliver, you don't get paid - at least not quite as well as you might have expected.

At least half a dozen top executives from National Australia Bank have had their ability to buy a new Porsche or holiday house or to plan an Aspen skiing holiday severely restricted.

The reason is simple. Australia's biggest profit maker has dumped $3 billion on its investment in HomeSide. Shareholders have suffered and so executives will suffer too - their performance pay has been cut in half.

It is a good sign. For the past few years, the pay packet of leading executives has been largely linked to performance. Base salaries of $300,000 to $500,000 are augmented with performance factors that can double, treble or even quadruple their take-home pay.

Perhaps it was the bullish market or the powerful economy, but no one's pay packet seemed ever to go backwards.

But this year, with edgy markets and an uncertain economic outlook, poor performance is about to be rewarded with poor pay.

The image-conscious National Australia Bank this week took a decisive step.

The bank's annual report is about to be released, and will presumably unveil huge performance bonuses for the record profit of the previous year.

It will also detail the carnage caused by the HomeSide debacle. The two will fit badly together.

So to clear the air, the bank took the unusual step of telling shareholders that in the coming year, the performance payments of chief executive Frank Cicutto and the executives who report directly to him will be slashed by 50 per cent.

The bank has also canned the idea of issuing share options to Mr Cicutto.

That is a welcome step which others should follow, and is in sharp contrast to some controversial packages handed out in recent weeks.

The most eye-catching was the $15 million payout to Sheryl Pressler, the head of Lend Lease's United States property business. She didn't work out so well, so she has moved on.

Shareholders are still catching their breath over the size of the farewell payment.

The most audacious was the move by the Packer internet offshoot e-corp to cut the price of options issued to its youthful chief executive Alison Deans.

She had received options that were exercisable at 70c each. That was deemed too hard, so the loss-making company recommended the strike price of the options be reduced to 51c, just above the prevailing market price.

That does not comply with what most people would describe as an incentive payment. Perhaps the shareholders were too stunned to respond, because they did not oppose it.

Another key announcement this week was the decision of Mayne Nickless chairman Mark Raynor to step down.

Raynor, the former chairman of National Australia Bank and still the chairman of Pasminco, has had to cut his workload to concentrate on Pasminco, which is in the hands of administrators.

Raynor's moves were not a recognition that he had acted poorly, merely that he needed to take decisive action to mollify the concerns of shareholders.

It was an act that may not have occurred in the 1980s or 1990s and a sea-change in attitude from the Melbourne club, which for the past few decades has been the domain of Australia's business elite.

Many businessmen created great empires and generated much wealth, and convinced themselves of their own invincibility. Now it's clear they are becoming sensitive to the demands of investors.

That is something of a triumph for Australian institutional investors, who dislike public hangings but insist they are active behind closed doors.

They are the owners of these businesses, and responsible to millions of investors to ensure they are well managed. The public expects more than a passive investment.

* Giles Parkinson is editor of AFR.com