Restrained is not an oft-heard descriptor of executive pay. The fact that chief executive pay among our largest listed companies actually fell in 2022 begs the question of whether boards, appropriately, have taken the community’s pulse and exercised prudence?
Maybe. But it feels a bit premature for boards to start back-patting for curbing the excesses of chief executive salaries.
To begin with, a serious question mark remains around whether chief executive salaries will break out in 2023. The organisation representing Australia’s massive industry funds, the Australian Council of Superannuation Investors (ASCI), says companies are already looking for ways to boost executive pay this year.
The executive pay data released by ACSI for 2022 is encouraging but historical.
The average realised pay for the top 100 listed company CEOs fell to the lowest level recorded in the nine years since this data has been collected. Average realised pay is the value of cash and equity actually received by CEOs.
And when measured as a multiple of average adult earnings, the average realised CEO pay among these corporate giants fell from the post-pandemic high of 98 times to 55 times adult weekly earnings.
But a closer examination of the recent history of executive pay shows that a larger-than-average fall in the 2022 executive pay followed a significant jump the previous year.
The 2021 year was a big one for pay as bonuses surged. In 2022, bonuses came back down to the levels in the three years leading up to the pandemic.
ACSI, which represents the large industry funds, says it is already being sounded out by some companies that want to lower the financial hurdles that chief executives need to meet to receive a bonus.
This seems to indicate boards are concerned that in 2023 profits will come under pressure and many executives will not hit the financial hurdles necessary to bring home a significant bonus.
And when it comes to executive pay, the big bucks are almost always to be found in bonuses rather than base pay.
Shareholders, including those that ACSI represent, will be disinclined to move the goalposts on financial hurdles because the chief executive stood to take a pay haircut in any one year.
“Investors will be watching closely as the reporting season gets under way and we see the numbers for 2023,” said Ed John, ACSI’s executive manager for stewardship.
“It has been a choppy year for investors in many companies – boards will need to consider performance carefully when deciding on remuneration this year. If performance is down in 2023, we expect to see bonuses follow. We don’t want to see companies changing the goalposts when they have a bad year.”
Indeed, any suggestions that executives in this pay league would need to be compensated for the higher cost of living would be ludicrous – remembering that, on average, they earn 55 times the average worker’s pay.
For context, the average realised pay for a top 100 company chief executive was $5.26 million in 2022, and the median was $3.9 million. This drops to $2.9 million and $2 million respectively for the next 100 smaller companies.
The average salaries can be significantly skewed by chief executives at the top of the pay pile, and the list of top-dollar recipients may come as a surprise.
Thus, the three highly paid US domiciled executives of Australian-listed companies that ranked among the top 20 earners have been excluded from the consolidated numbers.
These are Mick Farrell from ResMed, who ranks first in the pay tally, having notched up a hefty realised pay of more than $47 million. The others were News Corp’s Robert Thompson, who ranked third on the list with a pay packet of more than $35 million and Ron Delia of Amcor who trousered $14.2 million.
US executives typically earn significantly more (or a multiple) of that earned by Australian executives who run similarly sized companies.
If one excludes them from the list, Greg Goodman from Goodman Group ($44.3 million) and Alex Dorsch from Chalice Mining ($17.8 million) move to the top-two positions, followed by the only woman to make an appearance on the list, Macquarie’s Shemara Wikramanayake who earned $17.5 million in realised pay.
Paul Perreault from CSL, BHP’s Mike Henry, Woolworths boss Brad Banducci, and Rob Scott from Wesfarmers all run top 20 companies by market capitalisation and are among the 20 highest-paid executives.
The big four bank chief executives, the chief executives of Telstra, Coles, Rio Tinto and Fortescue are notable absentees from the list.
As for the performance of those 20 best paid executives, only four managed to produce a positive total shareholder return in 2022– Macquarie’s Wikramanayake, BHP’s Henry, Delia’s Amcor and Kevin Gallagher who runs Santos, although all 20 were in positive territory on their annual total shareholder returns over five years.
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Source: Thanks smh.com