Why big does not always mean better
By Danny John | smh.com.au | 26 September
Taxing employment... for a restaurant or barperson, remuneration can be well below the wider community average. Photo: Jessica Shapiro.
Further evidence is set to emerge today that the size of a chief executive’s remuneration does not necessarily reflect the performance of their company in terms of boosting shareholder returns.
The Australian Council of Superannuation Investors is due to release its annual survey of executive pay which is understood to showthat not all of the top 10 beneficiaries head a top 10 ASX-listed corporation.
And of the six companies that have consistently held the top ranking over ACSI’s three-year qualifying period in terms of total shareholder returns, only two are believed to have met the performance hurdles necessary to award their chief executives their due salary packages.
The council’s research, which has been undertaken every year since 2001, will add support to calls for greater alignment between what a chief executive receives and how much their company makes for investors.
It carries particular weight with dozens of super funds, which use its research into the corporate governance of companies to help make their investment decisions.
The council’s members have more than $250 billion of funds under management. How bosses and battlers make do Ian McIlwraith
Kevin waits tables and works the bar three nights a week at a giant gambling and entertainment complex, starting at 5 and sometimes finishing at 5am.
He goes to uni and the part-time work takes out his Friday, Saturday and Sunday nights. At about $22 an hour, it will take Kevin 270 hours, or about nine weeks, just to cross the $6000 tax-free threshold.
Therese direct-markets subscriptions for charities, in shopping centres and on the street, starting at 7.30am each day and almost always finishing after 5.30pm.
She is a sole contractor, not an employee, so gets no holidays, superannuation or health benefits (let alone reimbursement for using her mobile phone to complete sales).
She has to win at least eight sales a week to keep her job – and sometimes works Saturdays to meet the target. It takes her about 350 hours, or seven weeks, to earn $6000.
By comparison, a BusinessDay survey of the pay packages of the chief executives at the 100 largest companies listed on the Australian Securities Exchange reveals that, on average, one in two of the corporate high-flyers pockets at least $6000 every two days – and that is assuming they worked all day every day for just their "basic" pay.
After wrapping in all the lurks and perquisites of bonuses, travel, health insurance, school fees, company jet usage and piles of real and virtual shares in their salary packages, fewer than 25 per cent of the chief executives failed to earn $6000 in a single day – and most of those who missed the cut did so only because they were not paid for a full year as they swung in and out of executive suite jobs.
But what if they worked an eight-hour day, five days a week? Well, if you were Rupert Murdoch's former right-hand man, Peter Chernin (he left at the end of June), you made that $6000 by the time the wage slaves were lining up for their Monday morning coffee thanks to his $US8.1 million ($9.31 million at yesterday exchange rate) basic pay.
Chernin's total package of $US22.2 million made him easily the highest paid in the top 100. If you really want to cry, that means he was credited with almost $1 every time the clock ticked.
The closest to him was BHP Billiton's Marius Kloppers whose total package jumped more than 50 per cent to $US10.39 million, in spite of the group's profit heading in the other direction.
After that came the Commonwealth Bank boss Ralph Norris on $9.2 million, with the former Telstra chief Sol Trujillo nudging over the $9 million mark thanks to his $3.8 million termination payment.
The highest-paid woman, and there were only two in the top 100, was the Westpac boss Gail Kelly on $8.6 million.
That's last year's figure because the bank, like competitors National Australia Bank and ANZ, does not finish its financial year until September 30.
The Singapore Telecommunications chief Sock Koong Chuaearned $S3.38 million ($2.75 million) this year, ranking 21st. It was a sign of how tough a year it had been that Murdoch's News Corporation paid Chernin $US6 million less than he got last year.
Murdoch himself continues to be the best paid chairman, albeit his $US19.89 million this year was down on the $US27.55 million total package of last year.
His nearest rival last year was the Westfield shopping centre group founder and executive chairman Frank Lowy who picked up more than $16 million, but Westfield does not finish its financial year until December, so Lowy's latest pay packet will not be known until next year.
Meanwhile, BHP Billiton's Don Argus, at $1.14 million, is perched a long way behind the News boss. At the moment, there are three women chairing top 100 companies, the blood products giant CSL's Elizabeth Alexander being the highest paid on $470,000, which ranks her 11th on the scale.
Catherine Livingstone, who has taken over from Donald McGauchie at the helm of Telstra, picked up just $329,000. Given McGauchie pulled in more than $500,000 this year and last year, Livingstone can look forward to a handy pay rise this year.
Elizabeth Bryan at Caltex received a $412,000 package for last year, but the oil company does not rule off its books until December 31. According to the latest Australian Bureau of Statistics figures, average weekly full-time earnings in Australia equate to about $62,000 a year.
You are closer to that if you are a bloke (for some reason we are still in the 19th century, and many women are still being paid less for doing the same job as a man), and getting a full-time position is increasingly difficult as companies shave their employees' working hours, or "dis-employ" them, by turning them into casual staff to cut corporate costs and fatten profits for owners and shareholders.
Those same ABS figures reveal that total earnings for all employees average a more modest $48,000 a year, or about $920 a week.
However, the average basic pay of the chief executives surveyed in the top 100 was $1.54 million for this year, or almost 25 times the ABS full-time average, and more than 30 times the total-earnings average.
While the pay of average workers was up by between 5 and 6 per cent on the ABS estimates, the basic pay of chief executives gained an average of more than 7 per cent in the year.
Perhaps unsurprisingly after the near collapse of the world's financial system, and the struggles of many companies to find finance and customers in its wake, chief executives' overall packages were smaller this year: down by an average 14 per cent.
That suggests a swing from long-term to short-term rewards in a time when the value of shares has been doubtful, and paying cash bonuses distinctly politically unfashionable.
Governments and others worldwide have been wrestling, so far unsuccessfully, with ways to cap the huge annual bonuses and termination payouts, or golden parachutes, for chief executives at a time when many companies are pushing out the door, voluntarily or otherwise, lower-paid workers either to compensate for falling profits or in the struggle to stay afloat.
Most of the fall in values of what companies call “long-term incentives”, which are usually some form of deferred shares awarded to executives on condition they keep performing (and do not desert the company), is a result not just of the sharemarket downturn.
It is because many executives missed their performance targets (some even lost their jobs as a result), they have either had to hand back the shares, or their entitlement to them has been cancelled.
For small investors, an encouraging feature of the year's remuneration reports from most companies is that trying to find out how, and why, much of their board and management were paid is becoming easier thanks to more standardised reporting.
While many of the explanations of how long- and short-term performance awards are calculated are still coma-inducing for the average person, the overall level of information is higher and more accessible than ever.
There are still a few companies, however, determined not to make it easy – like those that chose not to display the payments in tables which combined the current and previous year's figures so investors could make an immediate comparison, instead running them in separate tables on separate pages.
Others have used typefaces requiring a magnifying glass to read, and some locally listed but overseas-based groups have only current year numbers and no comparisons.
270 hours
Times it takes waiter Kevin to cross the $6000 tax-free threshold
350 hours
Time it takes for direct marketer Therese
1 day
Time it takes the average chief executive
100 minutes
Time it takes former News Corp chief Peter Chernin
Footnote: Therese missed her sales targets and was shown the door – without any termination payments.
First published by Smh.com.au on September 26 2009
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