The Australian Council of Superannuation Investors (ACSI) once more commissioned Ownership Matters to undertake a thorough review of CEO reward among the ASX 200.
An interesting feature of the report is the relatively stable median level of CEO fixed remuneration (ASX100) since 2008 when it stood at $1,745,856 and in 2016 was $1,790,000. The average fixed remuneration over that period has, in fact, declined from $1,947,350 to $1,892,141.
The report states that since the 2008 Financial Year, CEO pay has been held in check, this in part being influenced by the advent of the two strikes rule. The recently published 16th Annual Survey has compiled data from 83 of the ASX 100 CEOs and 77 from the ASX 101 to 200. It reveals that almost one third of the ASX 100 CEOs received bonuses equal to 80% or more of their potential maximum pay out while 18 CEOs received less than 50% of their maximum.
We note that the median bonus reflected marginally less than 70% of the potential maximum, down from 76% in FY15, standing at $1,490,000. The average bonus however, rose from $1,950,000 to $2,060,000, arising primarily from a small number of significant bonus recipients. Among the second 100, the median bonus as a proportion of the maximum rose from 56% in FY15 to 74.5% in FY16. The research has revealed that this was largely due to new entrants in the survey. The median bonus rose almost 30% to $486,000 though the average declined slightly. It was noted that more than 15% of the second 100 CEOs received no bonus after failing to meet performance hurdles.
The report noted that in the second 100 ranked companies, median and average fixed remuneration fell for the second consecutive year with the median declining 2.2% to $864,000 and the average 3.7% to $1,040,000. These figures, as well as those pertaining to the top 100 companies, reflect a skew drawn from the larger companies in each strata paying significantly more highly.
Ownership Matters, in their research, also comment on the gap between realised remuneration and disclosed statutory remuneration, revealing that cash payments plus the value of vested equity was significantly higher than average disclosed pay, that is, cash payments plus the value of vested equity was significantly higher than average reported pay. In this context, average realised remuneration for an ASX 100 CEO was $5,700,000, being $5,540,000 in FY15. Average reported pay was $5,160,000 (FY15 $4,499,000).
Among the second 100 ranked companies, average realised pay was $2,020,000 (FY15 $1,890,000) which again is higher than the average reported pay of $1,780,000.
The report provides interesting historic comparisons of fixed remuneration, levels of bonus payments and changes in the pattern and structure of total reward. It also has an interesting section on termination payments over an extended period for CEOs of a top 100 company revealing substantial variability over the years. Termination payments, in this context, are payments at the time of separation which in many instances reflected the outcomes following retirement or resignation rather than termination for non-performance.
Among the ASX 100 companies there were indicatively marginally less than 10% of CEOs terminating over the previous four Financial Years with a similar though more variable pattern year-on-year among the second 100 companies.
The report does not cover in any significant detail the cumulative or annual value of grants offered to CEOs under shareholder approved long term incentive plans. It does, however, comment on and report on realised reward arising from the vesting of equity grants.