Chief executives are more likely to get fired than be denied bonuses for supposedly exceptional performance, an investor group says

This article is more than 3 years old

This article is more than 3 years old

Bonuses for supposedly “exceptional” performance are still routine among Australia’s top corporate bosses, despite their average pay packets remaining flat since the global financial crisis, new figures show.

Chief executives of Australia’s biggest listed companies are more likely to get fired than not receive a bonus – 86% pocketed one in 2016 according to a report by the Australian Council of Superannuation Investors.

Domino’s Pizza boss Don Meij was the third highest-paid chief executive in Australia on $21m, a “remarkable” result given his reported salary was $4m, the report said.

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Meij’s windfall came from cashing in options on the back of a share price surge that came to a screaming halt this month when Domino’s missed profit targets, and following months of publicity about problems in its franchises including claims of multimillion-dollar underpayments.

The averaged “realised” pay among ASX 100 chief executives in 2016 was $5.7m, which was 93 times the average Australian earnings as of last November.

Comparative data about gender pay equality in top corporate ranks was impossible since “sadly the pool of female CEOs” in the biggest 200 listed companies – nine women – was too small for meaningful analysis, ASCI noted.

Fixed pay before bonuses rose slightly over the year but was the same as nine years ago, which reflected investor pressure for boards to keep executive pay in check, according to ASCI.

This included through the “two-strikes” rule that since 2011 allows shareholders to push for a board spill if pay proposals are twice disapproved.

However, ACSI’s chief executive, Louise Davidson, said the prevalence of big bonuses was the ongoing concern for investors and raised “serious questions about the way performance hurdles are being designed and applied”.

“Investors reasonably assume that bonuses will only be awarded for exceptional performance, over and above normal expectations,” she said.

But the median payout for bonuses was 69% of their maximum, with only 18 chief executives in the ASX 100 getting less than half their maximum.

This showed chief executive bonuses bore little relation to performance in many companies, Davidson said.

Julie Walker, associate professor of accounting at the University of Queensland, said while shareholder scrutiny had a role in heading off runaway executive pays, “economic influences such as historic low wages growth for Australian workers had also had an influence”.

“It’s difficult to justify large executive pay rises when average worker earnings are stagnating,” she said.

Walker agreed that executive bonuses “still seem ‘too easy’ to achieve”.

“And it does beg the question of whether bonuses have been substituted for fixed pay to some extent, given the downward pressure on CEO fixed salaries,” she said.

Walker noted that “equity rewards” as company share packages for chief executives had increased in 2016. “It seems that low wages growth for the average Australian worker is only partly paralleled in Australian executive pay packets,” she said.

The biggest chief executive salary was shared by shopping centre mavens Peter and Steven Lowy of Westfield Corporation, at $26.2m.

They were followed by Macquarie Bank’s Nicholas Moore with $25m, while Louis Gries of James Hardie was fourth with just $10,000 less than Meij.

Davidson said ASCI welcomed recent examples of boards scrapping bonuses, for example the Commonwealth Bank as a result of its money-laundering scandal.

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“However, we can’t help wondering why these executives would have qualified for any payments in the first place,” she said.

Companies needed to better explain why bonuses were given and that they were “fair and reasonable, having regard to company performance”, Davidson said.

Commonwealth Bank’s Ian Narev, who has announced he will quit next year as the fallout from the scandal continues, was the eighth best paid chief executive last year with $12.2m.

BHP’s Andrew McKenzie was among the 10 best paid CEOs in terms of reported salary, but not “realised” pay after he gave up his bonuses after the Samarco dam disaster in Brazil that killed 19 people in 2015.





