The present crisis in financial and capital markets highlights issues which have been raised in the Australian, US, UK and European parliaments regarding the independence of external advisors and their level of engagement in the provision of professional services to corporations.
While there is a significant focus on substantial rewards paid to senior executives in major corporates, the facts reveal that outside the top 100 companies only a small percentage of senior executives, including Chief Executives, receive salaries plus annual incentives to a combined value of $1,000,000.
Over the past decade the average level of market capitalisation of a top 100 company increased from less than $4 billion to $12 billion, with profits escalating from around $350 million to an average in excess of $1 billion.
Executives are not isolated from the broad market pressures affecting many constituents and certainly all investors. To profile an executive as an individual isolated from
Traditionally there has been at the level of CEO and direct reports a strong correlation between base pay, annual revenues and market capitalisation and an even closer relationship to total reward (that is fixed pay plus annual bonus plus the value of long term incentives), and growth in market capitalisation and a company’s level of profitability.
Government leaders and their advisors internationally have recently expressed concern about the reward levels of those involved in financial markets which are embroiled to a greater or lesser extent in the global liquidity and credit crisis now being experienced and its flow-on effect to the capital markets.
The Australian prudential regulator has outlined its approach to Executive Remuneration.
In recent years executives and senior management have been the beneficiaries of regular annual adjustments to their fixed remuneration.
Egan Associates have observed among Australia’s leading companies significant variation in the manner in which equity based incentives are valued and allocated to senior executives as part of their total reward package particularly in relation to the reward intent understood by boards