Executive salaries

..socio-economic
status of the students. Private schools send all their problems to State schools
where teachers cope with extraordinary generosity of spirit. Most of the time.
But this, perhaps not too tangentially, brings to my attention the absurd amounts
that CEOs of large corporations are paid, which is both disproportionate and
absurd in relation to the average – or even the median – salary. Having
met a few heads of business over time I have, with the possible exception of
the current CEO of Telstra, not believed one of them was remotely deserving
of the money and perks handed out. The previous Mexican carpet bagger who ran
Telstra , Sol Trujillo and his band of overpaid devious cohorts, nearly ran
the company into the ground, so unaware of local culture, business and how the
Australian government worked. Yet Mr Trujillo fled the country with a golden
parachute of around $30 million.
But then again they were chosen by the esteemed Mr Donald McGauchie, once head
of the National Farmers Federation and confidant of John Howard, a person whose
contribution to industrial relations was cheer on the sacking an entire dock
workforce for being members of a union. He planned to replace the workers with
serving and former soldiers, trained in advance in Dubai. The photographs of
the balaclava wearing figures with guard dogs were the industrial relations
winners of the year.
Did I say that Trujilo’s departure was coincident with McGauchie’s
removal from the board?
The total packages of chief executives of the top 300 listed companies rose
4 per cent in 2011 to an average $2.33 million. However, if we take the past
10 years into account, packages grew twice as fast as earnings and more than
three times as fast as inflation. I would say that, without exception executive
salaries have been immune from the effects of the GFC when bonuses and benefits
are taken into account. And on any analysis salary packages are structured so
that it takes superlative ineptitude or a rare moment of honesty in the face
of falling revenue for an executive to actually do badly, no matter what happens
to ‘his’ company.
The odd thing is that outstanding performers are motivated by a challenge and
far less by money, and that the composition of a CEOs pay package has nothing
to do with his future performance. Even stranger, a CEO may not make all that
much of a difference in whether the company is a success or a failure. Unless,
like Steve Jobs, they founded the company
By the way, $2.33 million is more than 33 times the average wage – not
yet at the 200 times level that the United States has achieved. However, for
statisticians amongst you, the median Australian income is less than half the
average American income, so you can happily double the above ratio.
Is the CEO of Transurban worth over $8 million per year for an operation which
is essentially clipping the toll tickets on an organisation that cannot even
fulfil its basic function which is to keep the roads and tunnels running?
As by Myriam Robin of the journal LeadingCompany stated recently …
“Executive pay is complex, and the picture in Australia is nuanced. For
one thing, while most Australian executives had take-home pay in line with in
the annual report, several executives earned far more than is clear by looking
at their reported pay packets, once things such as equity (typically awarded
in the form of options) are taken into account. Options are the ability to purchase
shares at a certain price at a later date, and are awarded several years before
they vest, meaning it can be difficult to assess their value at the time they
are granted.’
Tony Poli of Aquila Resources was singled out in the study for taking home $169.4
million despite his official stated pay amounting to $572,000. His return was
boosted by several waves of options he was issued from 2005. The most lucrative
was 5 million shares, then valued at $2.15 million, awarded in 2005. As Aquila’s
share price soared, they vested in 2007 for a hundred times that amount ($238
million).
Nice work if you can get it.
Why is this state of affairs in existence you may ask? Well the obvious answer
happens to be the correct one. It is the result of a self-selecting group of
interlinked people that have created a delicious set of circumstances that create
risk-free rewards for a generally average managerial class who have greed and
status as objectives.
CEO’s pay generally is set by a compensation/remuneration committee, usually
comprised of other chief executives, Board Members or selected representatives
of accounting and consulting firms who depend on their selection for other business
with the company on the whims of CEOs. Their existence is predicated upon maintaining
and enhancing the current scenario. The gene pool of Australian business is
small but the intelligence pool is even smaller. Fortunately they are all friends.
There is some hope for shareholders who are angered by this situation: for the
past two years, they’ve had a compulsory formal mechanism with which to
register their displeasure. The two-strike rule, effective from July 2011, makes
shareholders vote on a company’s remuneration report, with two strikes
of 25% of more shareholders in dissent for two consecutive years triggering
an automatic spill motion on the company’s entire board.
However, given the proxy votes available to boards, getting the 25% is sometimes
a challenge. But given the current inequitable situation it is incumbent to
moan as loudly as possible. After all they are spending our money.