The Journey

In this interview John Egan, Chairman and Founder of Egan Associates offers his reflections on:

  • the journey of consulting
  • what clients need from a consultant or advisor
  • the changing landscape facing clients today
  • the diversity of clients and the unique issues they encounter
  • the evolution of the Egan Associates’ perspective on reward
    and governance.

Q : You Completed a BA and then did your Masters in Business Administration, you are a successful entrepreneur, but are most widely known for your consulting business. How did you end up specialising in executive remuneration and governance?

John Egan : After graduating from university in social sciences, I joined the Ford Motor Company in Melbourne in the industrial relations division, working in salary administration and award restructuring. This triggered my interest in the field of remuneration and work value and built on my studies in economics and psychology. I returned to Sydney to complete an MBA and joined what was then Cullen Morton, a prior employer of one the HR executives at Ford.

Q : You have been in the business for more than 30 years. What are the biggest challenges Egan Associates faces in providing advice to clients today?

John Egan : A key challenge is being able to accommodate the often conflicting perspectives between boards representing shareholder interest with the differing views of management. Another is dealing with the commercial imperatives that exist for an organisation trying to retain or attract top talent to guide it through difficult times. It is relatively easy to attract someone to a successful organisation; the challenge is getting top talent into organisations that are struggling. This is in addition to the ongoing need to protect shareholder interests and the demands of corporate governance.

We are often called upon to attest to the reasonableness of strategies which management or a board seek to pursue. Our role is to understand the strategy and how appointments and reward initiatives can best support it.

Q : Is consulting today still an exciting field to be part of?

John Egan : Consulting is exciting, it presents you with challenges every day and the focus of remuneration consulting changes as trends come and go. I think in the last 10 years, I have also changed my consulting style, having a far more moderating style, being able to tell boards and executives that they are either competitively paid already and some of their reward strategies are not appropriate, either in the market context or given their own circumstances or stated pay policies.

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Q : What makes a great consultant in your field of business?

John Egan : A critical skill for a consultant is to be a good listener. Our principals devote a considerable amount of time to listening to the perspectives of their clients. The other key skill is managing the different perspectives of those within a client group (eg the board and the management), and of course dealing with their expectations.

I also think a critical skill is to understand data and market trends. I learnt early on in my work with remuneration surveys that you can ‘cut and slice’ market data to demonstrate almost any outcome through selective sampling. A good consultant knows how to use the data ethically adopting a variety of lenses which provide insights which appropriately support boards and management in their decision making.

Q : You hear so much now about corporate governance and the need for independent advice. How does Egan Associates offer independent advice? For example you advise many organisations operating in the same industries.

John Egan : The vast majority of Egan Associates clients are repeat clients and we do have clients that are competitors in an industry. In this context all client data not publicly available is kept confidential as are our client strategies – our clients expect us to be an informed confidant. We work today with clients we have worked with for the past three decades. Most of our team have long standing relationships. We also have many more recently acquired clients, particularly among smaller start-up enterprises and others in private ownership. As governance demands independence, we are in a strong position as our clients use other advisors for legal, M&A, audit and accounting purposes.

Q : We hear a lot about executive reward and the need for greater legislation to control it. It has been said that consultants simply push up the rates of pay for senior executives and boards? Do they too need to be controlled?

John Egan : Advisors have a role to play in the remuneration debate. I made submissions for example to the Productivity Commission Review of Executive Reward. In working with our clients, we will use our experience to determine the reasonableness of a reward issue and where necessary we will indicate our unwillingness to support proposals in the context of Section 211 of the Companies Act. In many instances, we will work with clients to help them modify proposals to ensure they pass the test of reasonableness.

In terms of fixed reward movements, we have generally been more supportive of higher rates of increase to board fees than to the adjustments in the fixed pay of management. This reflects the increasingly heavy workload of directors on the one hand and the need to recognise some of the anomalies that can develop in relation to accountability.

We have in recent years started to explore the relationship between the aggregate fees of a board of say six or eight directors and the annual cash compensation of a chief executive. While we acknowledge that an increasing proportion of a chief executive’s reward is at risk, we also recognise that in the vast majority of boards, member pay is not at risk but directors are also not rewarded for success. Directors are also the ones who hold back pay adjustments when their companies go through periods of adversity.

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Q : You have consulted extensively with the private sector, large and small organisations, public and privately owned and you work for the government, for example in your work with the Remuneration Tribunal. Are the issues facing this diverse client mix similar, or do you need to offer different advice depending on the ownership structure of the organisation?

John Egan : We have worked across almost every sector of business, listed companies, unlisted public companies, international subsidiaries and privately held businesses. We generally find that the principles which underpin sound remuneration planning and outcomes are common across all sectors. The instruments will differ, the relative weighting of fixed remuneration, annual incentives and long term incentives will vary, as will the time horizons of managers.

In the public sector, my observations are that they have a number of quite different challenges. Where they are engaged in the delivery of policy advice or a community based service, many have questioned the conflict between providing incentives out of savings which may lead to diminished community service.

In the government, there is generally a stronger focus on internal rather than external equity. In commercial enterprises where the government is the major shareholder, there is generally recognition of the need to be aware of remuneration like the private sector, although more in design than payment levels.

From time to time, the gap between public sector wages and private sector reward for specific skills and leadership attributes becomes too wide and government loses talented executives. In these circumstances we have found governments willing to consider positioning themselves closer to the private sector. This is often difficult and implementation needs to be timed with a positive political climate for the government of the day.

There are also challenges in government in relation to the payment of ministers who are essentially chairmen of substantial enterprises, whether they are providers of policy advice or one of many portfolio agencies which are substantial businesses in their own right. Politically it is not always practical to pay ministers a significant premium for their additional workload or to pay differential premiums between ministers, even though the scope and consequences of poor judgement in different ministries can be highly variable.

Q : Outside your business you have devoted considerable time to the development of young graduates through your involvement with AIESEC and the Faculty of Economics and Business at Sydney University. What is your impression of the graduates you have met?

John Egan : I was delighted when with AIESEC in the 80s and 90s we were able to secure so many employment opportunities for Australian graduates overseas and that Australia businesses employed many international graduates in the exchange program that continues today.

I never fail to be impressed by young people pursuing undergraduate and postgraduate studies. Not all will be leaders in government or in the private sector, but the majority are enthusiastically preparing for a better career than might otherwise have been the case. They respond well to adjunct academics who bring a perspective of the world of work and the challenges which graduates will face. I am encouraged by the quality of their questioning and increasingly the combination of their desire to succeed in parallel with an increasing social conscience.

Q : Your garden, The Braes in Leura, is clearly something close to your heart. Is it somewhere to express another side of yourself or simply a lovely spot to be in Spring?

John Egan : I could have pursued my studies on leaving school in agriculture but scholarships and opportunities took me down the social sciences path. When the chance to acquire a wonderful site in need of redevelopment with vistas from Leura to the Southern Highlands became available, I jumped at the opportunity.

It has provided enormous satisfaction and is a wonderful outlet for my interest in nature, science and sponsored considerable international travel exploring the world of plants and landscape design. It has also exposed me to many challenges of nature, trying to nurture special plants in a cool climate environment, with abundant water and significant elevation.

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