Bosses' Pay Swells To $2.2m
The Age
Saturday March 31, 2001
The average pay of Australia's biggest corporate bosses swelled to a staggering $2.2million last year as company boards handed over money with little regard to performance, according to a new report.
The study looked at 58 of the Australian Stock Exchange's top 100 companies to find that roughly half their chief executives' haul was in the form of shares or options, yet there was little link between their pay and the returns to shareholders.
``In some companies there is clearly a link, and the CEO's pay bears some resemblance to how the company is performing in both share price or accounting terms, but in some cases the CEO pay has gone up while the company's performance has been declining," said Geof Stapledon, an associate professor at the University of Melbourne and principal of consulting firm Institutional Analysis.
In his report, Dr Stapledon looked more closely at the total remuneration of the 10 best-paid chief executives, whose pay ranged from $5 million to $69million in 2000.
``Most of those chief executives received an option component, but the gist of the issue is the nature of their performance hurdles and whether they are challenging or not," he said.
Share options by themselves might not be enough, because they would reward an executive when a wider market boom was lifting all boats, and vice versa, Dr Stapledon explained.
He said it was more appropriate to link options to the performance of the company relative to others in its industry. That way the CEO would be rewarded only if the company did better than its competitors in good times, and also if it did less badly in a downturn.
However, Dr Stapledon noted that current legislation made it difficult for shareholders or their representatives to study executive pay.
He said many companies were taking advantage of legal advice that said they did not have to explain the details of their option schemes, and for this reason his report could only look at a selection of the top 100 companies.
``This is despite ASIC's contrary view" of the law, Dr Stapledon said. He said the relevant parliamentary committee had late last year recommended amendments to the law to require more disclosure, and the government had expressed its support.
The median pay in the survey, including options and shares, was $2.2 million, while the huge payments at the top end skewed the mean to $4.2million.
The CEO's mean-fixed pay rose 15 per cent to $967,000 from $883,000 between 1999 and 2000. The minimum was unchanged at $80,000 while the maximum rose to $7.2 million from $6.9 million.
``Fifteen per cent far exceeds the inflation level for the same period, and also far exceeds the average increase in remuneration for general employees," Dr Stapledon said.
The fixed pay, however, was far outstripped by the increase in cash bonuses handed to corporate chiefs in the year. The average more than doubled to $1.2 million from $526,000.
Taking that into account, the average remuneration increased last year by 45 per cent to $2.2million from $1.5 million.
© 2001 The Age