Examining Chief Executive Remuneration and Entitlements

Following a recent address to the Armidale Business Chamber, Dr Phillip Lowe,  the Governor of the Reserve Bank, was reportedly questioned about his views on the high salaries “at the top end” of Australia’s leading companies.  Dr Lowe was highly critical of the substantial salaries and bonus payments made to CEOs, saying:

As a regular Australian, it disturbs me. Some people who are paid extraordinarily high amounts of money and working Australians have relatively low wages and getting small wage increases… There is a mindset that says, we have to pay you five or 10 or $20 million so that you deliver value for the company…”

These comments closely followed the release of a report by the Australian Council of Superannuation Investors (ACSI) on CEO Pay in ASX200 Companies. This research, conducted by Ownership Matters on behalf of ACSI, revealed that the average realised remuneration of the top 10 CEOs from companies ranked in the ASX200 was $14,834,376 in the 2018 financial year. This was substantially influenced by the top three ranked CEOs – Alan Joyce (Qantas), Nicholas Moore (Macquarie Bank) and Michael Clarke (Treasury Wine Estates) – whose realised rewards were in excess of $19 million. The range of rewards for the top 10 CEOs varied from $23,876,351 down to $10,017,376.  The substantial reward outcomes arose from a combination of at-risk cash and equity-based remuneration.

Egan Associates’ observation is that a proportion of the CEO reward outcomes realised during the 2018 calendar year as distinct from statutory disclosed reward arose from equity grants some years earlier.  Across the ASX 200, a proportion of executives received benefits where securities were allocated as a proportion of their fixed pay at a discount to the prevailing share price based on an accounting valuation reflecting the risk of failure/forfeiture.  This approach is not widely adopted today as boards have had brought to their attention the inappropriateness of allocating equity at a substantial discount to market price for the purpose of ensuring executives are well rewarded, albeit that their performance may not reflect top quartile outcomes.

The ACSI report also found that that more than half of the top ASX100 CEOs received at least 70% of their maximum bonus entitlements in the 2018 financial year. The median realised pay for an ASX100 CEO reached $4.5 million. It is reported by ACSI that the findings in relation to chief executive remuneration confirm and lend support to the prevailing corporate ‘culture of entitlement’ surrounding annual bonuses and incentives in many large Australian companies.

Following the Hayne Royal Commission, public trust and confidence in the financial services sector in particular has been significantly undermined, resulting in the increasing engagement of regulators in reviewing remuneration disclosures and transparency. It is therefore surprising that amid such intense scrutiny, at-risk cash and equity-based remuneration levels remain so high.

Countering this, ACSI has reported trends toward lower base pay for incoming CEOs, reducing their cash rewards by deferring a portion of benefits into equity and implementing bonus clawback provisions in cases of poor executive performance. The latter is in alignment with the current climate of corporate governance reviews by the ASIC’s Corporate Governance Taskforce, which have been focusing on the oversight of non-financial risk and practices regarding the payment of variable remuneration to key personnel.

Egan Associates recently completed its own comprehensive analysis of CEO remuneration and reward levels across the ASX 500, examining levels of fixed remuneration, annual incentives and the value of equity awards by ASX rank, by revenue and industry sector for the 2018 calendar year. Our research differs from ACSI in that it has not reported realised remuneration, but rather in relation to equity awards, has calculated the underlying incremental value of grants made in prior years where securities remain unvested at the end of the 2018 calendar year.  The numbers therefore do not incorporate the accumulation of value upon the vesting of securities which may have been granted in the 2014 or 2015 financial years.  In our judgment, the most appropriate foundation for measuring CEO reward is managing those calculations on an annual basis.

There is value in reflecting upon the level of incentives paid to executives among the ASX ranked companies to acknowledge both the average annual incentive as a proportion of fixed remuneration and to also report on the median and average improvement in those organisations’ profitability from the prior year. In this context, we are reflecting upon the profit improvement in the ASX 500 financial years ending in  the 2018 calendar year over the 2017 calendar year. Our research highlights significant reward outcomes at the level of CEO, in a context where year-on-year profitability improvements did not appear to support such significant incentives as proportions of fixed remuneration, as seen in the table below:


ASX Rank Average profit improvement (from 2017 to 2018) Median profit improvement (from 2017 to 2018) Average annual incentive as % of fixed remuneration
1-10 8.2% -9.6% 185%
11-50 20.5% 36.1% 106%
51-100 15.2% -3.5% 73%
101-200 69.6% 6.98% 61%
201-300 -24.3% 11.8% 67%
301-400 >500% 36.1% 35%
401-500 -69.5% -75.2% 33%


The data reveals the significant and aggressive level of incentives among Australia’s top 50 companies compared to the balance. Egan Associates has also considered Earned Annual Remuneration, which comprises a combination of fixed remuneration and annual incentives awarded.  In light of the current climate of tightened regulation and scrutiny of corporate governance and variable remuneration of key personnel, Egan Associates look forward with interest to comparing the 2019 data with the data above.


For further information on Egan Associates’ research report into CEO Remuneration – ASX Top 500 as well as our Non-Executive Directors’ Remuneration Report, click here.