The Agenda – March 2017

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Remuneration in the spotlight

High profile Australian figures have recently spoken out on the topic of executive remuneration. At an AICD governance conference in Melbourne, BT Investment Management NED Deborah Page admitted that her opinions on executive pay were so strong, no company wanted to appoint her to their remuneration committee.

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“We massively overpay people in this country and I think the incentive schemes are designed for the recipients, not for the company in most instances,” she reportedly said. “If it were me, I’d start from scratch.”

Former Commonwealth Bank Director Colin Galbraith stated that he’d never understood the rational for either STI or LTI schemes.

“Why do we have incentive schemes at all?” he asked at the conference. “Surely executives should do their job according to the KPIs set by the board.”

IAG CEO Peter Harmer later voiced doubt that the “old fashioned approach to compensation” worked.

“For me the jury is out on that – I’d be horrified if there was anyone in my team or anyone on their teams who would actually be motivated to do the right thing because of an incentive at the end of the year,” he said.

“I think the basic remuneration frameworks aren’t really connected to the needs of today, of our people, of our customers, or of our regulators.”

The company is currently reviewing its executive remuneration framework. It is not the only one – QBE recently revamped its incentive plans, rolling STI and LTI into a hybrid framework. AMP has also signalled it is reconsidering its long term incentive plans, increasing its LTI performance period and changing performance hurdles in the hope of focusing executives’ attention on long term performance and capital management.

Member bodies pressured on disclosure

The Australian Financial Review has written a series of articles examining executive pay at major accounting bodies Chartered Accountants ANZ, the Institute of Public Accountants and CPA Australia.

The impetus for the series was reported member dissatisfaction with CEO pay levels and disclosure at CPA Australia. It is only necessary for these organisations to disclose the remuneration of key management personnel in aggregate.

After requests from the paper, Chartered Accountants ANZ voluntarily disclosed its CEO’s remuneration, stating that  CEO Lee White will receive $600,000 in fixed remuneration in 2017. He will also be eligible for a bonus, which in 2016 was worth 28% of his base salary.

Following this disclosure, the focus broadened to include other member bodies including the Australian Institute of Company Directors and the Governance Institute of Australia, both of which have declined to reveal details of CEO remuneration. The Tax Institute disclosed that it paid its CEO $432,456 including superannuation and bonus.

The stoush followed criticism of Australia Post and other government organisations declining to disclose information on CEO pay, instead restricting their disclosure to KMP remuneration in aggregate as required by legislation. Finance Minister Mathias Cormann asked the Boards of these organisations to disclose executive remuneration arrangements for the 2015-2016 reporting period.

Gender Pay

The Workplace Gender Equality Agency has released its second annual report into the gender pay gap, drawing on data from 4 million employees and 12,000 employers in the 2015-2016 reporting period.

Significant findings included:

  • Gender pay gaps are lower in organisations with greater female representation among management. Yet gender pay gaps rise where there is a high concentration of female managers, from which we can infer that there may be such a thing as too many women in management. Is balance key to pay equality?
  • Organisations that improved the gender balance of their executive leadership teams between 2015 and 2016 saw the biggest decline in their organisation-wide gender pay gaps.
  • The managerial gender pay gap fell steadily from around 15% of total remuneration among firms where one fifth of managers (20%) are female, to 8% for organisations where four fifths of managers (80%) are female.
  • Pay gaps exist at the graduate level (2%-3%). The gap widens to 26.5% for key management personnel, with a significant proportion of the difference attributed to men receiving higher performance payments.

A recent report by Accenture into closing the pay gap stated that women were less likely than man to choose an area of study that offers high earning potential, have a mentor or aspire to senior leadership. Additionally, they are less likely than men to adopt new technologies and take coding and computing courses.

Accenture offered three areas where women can improve to accelerate the closure of the gender gap.

  • Digital fluency – the extent to which women use digital technologies to connect, learn and work
  • Career strategy – the desire to aim high, make informed choices and manage careers proactively
  • Tech immersion – the opportunity to gain greater technology skills (eg coding)

Jobs disappoint

The Australian Bureau of Statistics’ February employment data surprised on the downside. Unemployment rose from 5.7% to 5.9% on seasonally adjusted terms.

The past year has seen a fall in full time jobs of 23,200 and an increase in part time employment of 127,800 in seasonally adjusted terms, swelling the ranks of the underemployed.

A Westpac and Australian Chamber of Commerce and Industry Industrial Trends survey this month indicated on the other hand that more positive jobs growth may be on the horizon, with employment growth of 2% or higher expected for the year.

The most recent GDP data also provided reasons for positivity, with the 1.1% growth for the December quarter exceeding expectations. Growth for the year was still below trend, however, as the bumper December quarter followed a quarter of negative growth.

Companies have been the winners in the quarter’s uptick as corporate profits surge, while employee wages continue to experience record low growth.

Greens propose four day working week

Greens leader Dr Richard di Natale has floated the idea of introducing a four-day working week or six-hour day.

“We rightly talk about the 16% of people who want to work more hours, but we never hear about the more than one in four Australians who want to work less,” Senator Di Natale stated.

“A four-day work week, or a six-hour day might actually make us happier and create more opportunities for others, not to mention reducing the costs of full-time childcare.”

To enable this development, he stated there would need to be a guaranteed adequate income.

US employees declining holidays because of guilt, stress

According to a survey conducted by a car rental company, half of US workers feel guilty when they take a holiday, with younger workers also more likely to shame their colleagues for taking time off and leaving more work for others. Workers also worry about the stress of returning from holiday to mountains of work.

Only half of US workers are using the full number of leave days available to them, a reduction from approximately 60% in the prior two years. This despite the fact that US employees only receive two weeks of annual leave a year on average in comparison to Australia’s four weeks.

German executives face pay caps

A number of German companies have taken action to limit the remuneration available to top executives, imposing caps for the maximum amount payable in a year.

Volkswagen has capped pay for its chief executive at 10 million euros and other top managers at 5.5 million euros. Deutsche Bank limits the maximum pay including bonus for an executive board member to 9.85 million euros. Deutsche Post is reportedly also considering a cap that would prevent its executives being paid more than 6 million euros in a year.

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