No way to measure exec pay
By | smh.com.au | 02 April
Noel Davis, a superannuation lawyer, says there is no formal mechanism to measure if an executive's pay is too high. The Australian Council of Superannuation Investors has comprehensive guidelines on what constitutes "good" remuneration, and Mr Davis says there are rules of thumb that investors can use to get a feel for it.
"One benchmark that can be taken into account is that when I first became involved in commercial life 40 years ago, the earnings of senior executives and those at the top levels of the professions were similar," he says. "As a result of remuneration for some senior executives having increased at rates higher than for the rest of the community, that is no longer the case for some executives.
"Another benchmark that is relevant is that the prime minister, senior ministers, premiers and judges who undertake demanding work and have an enormous amount of responsibility do not, generally, earn much more than $300,000 per annum.
"I doubt that anyone would argue that a senior executive of a company that is not a large international company has more responsibility than the prime minister, the premiers or senior ministers.
"Is there, therefore, a mismatch in our remuneration structures in some executives of domestic companies being paid many times $300,000 a year? Is the work of an executive of such a company, with a remuneration package of $3 million a year, worth 10 times that of the people holding those offices?
"A factor that points to a remuneration mismatch in our society is that an accountant, lawyer, engineer, architect, medical practitioner, etc, may earn, in private practice, a few hundred thousand dollars a year but if that same professional becomes a senior executive in a company, his or her overall remuneration, including incentives, may substantially increase without necessarily having taken on any greater responsibility because, as those in the professions know, executives often rely on their advice in making significant decisions."
The council says a company's remuneration report should "outline all key aspects regarding the determination of remuneration policy, in particular the linkage between the policy and performance in the interests of promoting long-term shareholder value".
It says that in broad terms a properly structured remuneration scheme for executives should:
* Be reasonable in remunerating executives in a way aligned with shareholder interests.
* Be measurable against key corporate performance indicators.
* Be sufficiently market-oriented, within levels of comparability for similar peer group corporations in the context of industry, size and business focus.
* Be properly and comprehensively described to shareholders, including base cash remuneration, short-term bonuses and longer-term incentives or other rewards. Separately outline details of fixed remuneration, bonuses and incentives and share scheme arrangements.
* Be fully disclosed, valued and expensed in accordance with regulatory requirements.
* Be approved by shareholders.
First published by Smh.com.au on April 02 2008
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