This article was triggered by an enquiry from Patrick Durkin of the Australian Financial Review, responding to comments by the former Treasurer, Wayne Swan, that Chief Executive pay is “out of control”.
In undertaking research for our article focusing on the top 100 listed companies, our research revealed that in fact CEO fixed remuneration has declined since the period immediately prior to the Global Financial Crisis, while at the same time the average market value of the enterprises under their stewardship has increased from $11.6 billion to marginally less than $17 billion, or 46%.
The table below sets out the information which we have been progressively compiling over more than two decades on the remuneration of KMPs in Australia’s leading corporations.
Over the period on which we have reported above, the Australia/US exchange rate, by way of example, has moved from around 95c to 75c, reducing the global purchasing power of Australia’s top company CEOs, one of the highest taxed in the world.
Notwithstanding these broad observations, the analysis is not a perfect “apples with apples” comparison as the constituents of the ASX 100 over that decade have varied and there have been two or more changes to the CEO of a significant number of those enterprises.
Our experience, generally, is that replacement CEOs commence their journey on fixed remuneration below that of their predecessor, often serving between 3 to 7 years in the top job, but on occasions less than 3 years.
Over that period there has been a high degree of variability in the level of incentive paid to CEOs where such incentives are strongly aligned to shareholder returns. Equity-based LTIs are even more problematic as disclosures reflect a statutory accounting value not the realised value which is subject to performance hurdles, typically, relative total shareholder return performance and a defined earnings per share performance. Our experience is that between 60% and 70% of LTI awards vest.
Acknowledging that with the growth in these enterprises the increased internationalisation and increased exposure to the digital world and emerging technologies, the demands on these positions have changed significantly whereas the demands on many of those in the workforce, fulfilling standard trades, technical, administrative or sales roles, have not changed.
We readily acknowledge that the typical CEO of an ASX 100 company receives fixed remuneration in excess of $1.5 million or around nineteen times average weekly earnings. We also acknowledge that their work week is likely to be twice that of the indicative occupations reflected upon above and that Australia’s top CEOs have oversight increasingly of multi-located international enterprises operating in a number of jurisdictions with local economic, social and financial challenges.
Total reward of CEOs in the 2017 year across the ASX200 including fixed pay, annual incentives and benefits arising from performance hurdled equity incentives under long term incentive plans on average amount to $3,630,500.
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