The decade since the Global Financial Crisis can be regarded as one of considerable change in relation to incumbency and reward. It has also revealed some surprises in pay relativity and the structure of senior executive reward.
In order to explore the trends and highlight some issues of significance from this decade, we have considered the ASX 200 and reflected upon growth in market value from July 2008 through to July 2018.
In parallel with this research, we have also considered the aggregate national movement in average weekly earnings, having regard to ordinary time earnings and total earnings and movement in the Consumer Price Index.
In this context, we have observed the Consumer Price Index has lifted by 23.36% over the decade whereas average adult ordinary time earnings have increased by 43% from $1,000.10 in May 2008 to $1,433.40 in May 2018. During the same period total earnings (AWOTE) have increased from $1,171.50 to $1,650.60 or a 41% elevation.
In the context of these statistics, it is interesting to observe that the fixed remuneration of Chief Executive Officers among the top 200 companies has only increased by 6% on average, though at the median the elevation has closely paralleled the CPI, increasing by 24%.
Total remuneration for CEOs on average over the same period increased by 19% whereas at the median the increase was 30%. For the leading KMPs (the top three executives) in the ASX 200 over the same period, fixed remuneration increased by 9% on average and 22% at the median whereas their total reward increased by 33% on average and 34% at the median.
This reflects a closing of the gap between the market 25th percentile and the median.
Among the ASX top 50, while there have been relatively modest adjustments to the fixed remuneration of CEOs, the average movement in total reward has increased by 20% and for the KMP population, 26%. At the median, the total remuneration adjustment for a CEO has increased by 46% and 30% for KMP. This reflects pretty much a flatlining of fixed remuneration and a significant elevation in CEO incentive awards.
Among the second 50 of the ASX 200, movement has been relatively similar with CEO fixed remuneration flatlining, with KMP increasing over the period by 12% on average with total reward increasing by 23% at the level of CEO and 26% at the level of KMP. Again, movement at the median was substantially above the average with fixed remuneration for the CEO increasing by 14% and KMP by 20%, and total reward for the CEO increasing by 41% and KMP by 36%.
Among those organisations ranked in the second 100 of the ASX 200, the movement in fixed remuneration on average has been very different from the top 100, with CEOs experiencing an elevation above 21% similar to KMPs, though total reward has increased less aggressively. At the median, fixed remuneration has increased by over 33% at the level of CEO and 33% for a KMP with total reward at the level of CEO increasing by 32% and for a KMP 28%.
The market cap figures provide a perspective of the increasing scale of enterprises under the stewardship of a CEO and their most senior management. These figures reflect that their total reward uplift has not equated to the increasing scale of the enterprises under their authority.
It would be our assessment that the role of the average worker has not been significantly influenced by growth in a company’s market capitalisation or its annual revenues, though the oversight of Boards and senior management has increased in complexity, regulatory stewardship, jurisdictional spread, numbers of employees, as well as regulatory and legislative impost.
The remuneration data is not an analysis of the same incumbent, it is an analysis of reward paid to the position of CEO or reward paid to those executives identified, year on year, as KMPs.
These roles will certainly not have the same incumbents throughout the decade and will not always reflect common positions, although almost universally they include the position of Chief Financial Officer. Other roles classified as a top three KMP vary from a business group or global CEO, a Chief Operating Officer (where one exists), or other key executive which span a myriad of job titles.
While the above provides an overview of the top 200 companies, the tables below provide information on movement in both CEO and KMP reward among the constituent companies ranked in the top 50, the second 50 and the second 100, highlighting movement in the median and average levels of fixed remuneration and total reward.
The purpose of our research is to highlight trends, not trace specific individuals.
Our remuneration analysis does not incorporate the actual benefits flowing to executives in that we used statutory accounts including statutory LTI disclosures. The reward reflects the actual fixed remuneration and the actual incentive paid under the annual incentive plan. In this context, we incorporated in total reward the cash component and the value of the deferred component of an STI. Where deferral was in equity, we did not incorporate the movement in reward over the period of deferral.
In this context, our analysis reflects the statutory value of actual awards under equity-based LTI plans, not the realised value which has varied from 0 to multiples of the disclosed award value. Where a CEO or KMP has served less than six months during a Financial Year, and we do not have the benefit of an ASX disclosure in relation to their annual remuneration, we have not incorporated that company’s data.
Over the past decade we have seen statutory disclosures substantially undervaluing the potential value of an LTI where they have been adjusted for the risk of forfeiture and the risk of failure in meeting both the performance and service conditions.
It has also been an era, certainly in the first half dozen years, where a meaningful proportion of awards under LTI plans, particularly in relation to performance or share rights, have been issued at a discounted value by applying fair value accounting principles.
Notwithstanding, we also acknowledge that around 30% of participants under LTI plans do not benefit due to failure to meet either service or performance conditions and a significant number of participants under LTI plans only receive a proportion of the award given that the company has not met the stretch hurdles or the 75th percentile relative total shareholder return compared to a general index or a peer group, be it Australian-centric or international.
In the above context, while the information is imperfect it provides trend guidance.
We have also observed over the decade that many Boards have approved significantly more aggressive annual and long-term incentive plans.
In all the analysis, we have removed termination benefits for CEOs and other KMPs which would distort the results.
If you require further information about this data, please call John Egan or Zoe Lockyer on (02) 9225 3225.