• Home
• »
• Career Couch

• Home
• Executive Jobs
• Features
  • Focus
  • Career Couch
  • Radar
  • Water Cooler
  • Insight
  • Podcasts
• Place an executive ad

With much political fanfare, the Prime Minister recently announced a pay double whammy. First his government would legislate to cap CEO termination payments to one year's pay unless a shareholder vote agreed to more. The second was a Productivity Commission inquiry into executive remuneration, with former trust-buster Alan Fels in the main seat. There was not much of a business friendly look about any of this.

We have all been waiting for something to happen, and the sense within governments is that executive remuneration will rise no more. In fact the reverse is openly canvassed.

So what has happened over the past 20 years? My own experience is instructive. In 1990 I moved to the ANZ Bank from being a permanent secretary in charge of a government department. My government job paid me about $130,000, representing base pay, superannuation and a Ford. At ANZ I reported to the group CEO on a package of salary, superannuation and a Holden - totalling $133,000. I remember feeling a little indignant at the time. Weren't the new foreign banks supposed to have pushed up competition and pay? Apparently not. As it turned out I was paid fairly in both sectors, which weren't much different in remuneration relativities. In 1992, after a serious recession that threatened the existence of both ANZ and Westpac, a new ANZ CEO was installed on a package of $400,000 with two other executive directors at about $230,000-240,000. I was still sitting fairly at the next level in the pay pack on about $150,000. At that time there were only discretionary short-term cash bonuses and no shares or options - only a small share loan scheme. Fixed pay represented 90 per cent of total, on average.

Now the head of a federal or state government department receives about $500,000, and up to $600,000 in the case of the Federal Treasury boss. In contrast, the CEO of a big bank or a Telco is paid between $4 million and $6 million, depending on how you work out the increments to personal wealth from bonuses and incentives. So public sector heads have gone up three to four times over 20 years and leading private sector companies about 10-15 times, or three to four times the rate of their public counterparts. The 1990s relativity is now well and truly broken. Reputable business commentators regularly tell us that it all makes sense, as many top companies are now world market leaders with share capitalisations valued at 10-20 plus times what they were 20 years ago. The risks of being in these top jobs are also high, with average CEO tenure being four or five years. And when the CEOs move out so do many at the next level.

The real change to private sector pay relativities came in the early 1990s, when the US and European investment banks hit our shores. As world markets globalised and capital became more freely available, high premiums were paid to investment bankers who could pull companies apart and put them back together for major shareholder value improvements, or at least expected ones. Their remuneration structure had a base cash salary comparable to that of other industry executives, but it represented 20 per cent of their total, and 80 per cent sat within target incentives.

Local bank pay structures responded with tougher performance objectives and much bigger payouts for short- and long-term results. In one year during the 1990s my pay at ANZ doubled. I was provided a set of demanding performance objectives, and some further-out performance targets, against which higher short-term cash bonuses could be paid. On top of all that, share options were issued, with retention and effective personal performance hurdles.

Later the effect moved across from commercial banking to retail, with the arrival of smarter credit cards and other electronic banking wizardry. Retail bankers had their day in the sun, joining the corporate lenders in pay status. Other corporations had to keep up with the banks, or see their best people change teams. Then the resources boom hit and they moved up, too. Until last year.

That's when share prices of finance houses dropped at least 50-80 per cent in a few months, but executive pay did not seem to respond downwards in sympathy. When US taxpayer bail-outs were used by AIG to pay retention bonuses for top executives, all sympathy and patience in government was lost. The political sabres began rattling with menace. Whether this fiscal anger causes lean trimmings or a blunt axe to deliver brutal amputations in the world of executive pay remains to be seen.

Our world still has the potential to be an open and competitive marketplace, and that's unlikely to change. But if poor future policy choices are made the consequences for our economic recovery will resonate for a long time. A more co-operative government-industry approach can help prevent that. 

Peter Wilson is now national president of the Australian Human Resources Institute.