Australian Financial Review http://www.afr.com.au/content/991101/invest/invest1.html November 1, 1999 Chief executives' pay increases 22pc By Damon Kitney and Brett Clegg The salary packages of Australia's chief executives rose by an average of 22 per cent in 1999, buoyed by a robust economy, strong sharemarket conditions and an internet-inspired pay boom. Chief executive remuneration averaged $1.45 million, The Australian Financial Review found in a survey of the annual reports of the top 100 companies. However, this figure dramatically underestimates the total wealth of the nation's corporate leaders. Collectively they hold shares and options with a gross value of more than $975 million, reaping the rewards of the trend towards US-style share option packages on top of salary and cash bonuses. Across Australia's top 100 companies, the average gross value of options held by chief executives is $6.15 million. This dwarfs the $2.9 million average value of direct shares owned by chief executives. The survey methodology excluded the options and shares held by company founders, including Harvey Norman's Mr Gerry Harvey and Westfield Holdings' Mr Frank Lowy. It highlighted the lack of a consistent framework to benchmark remuneration against profit and share price growth and showed distortions between corporate sectors. "Executive salaries shouldn't be formulated in relation to how the sharemarket values them," fund manager Portfolio Partners co-founder Mr Keith Ince said. "But rather, how the company goes in relation to a benchmark and that is, how it performs in relation to its industry peers." Several prominent chairmen are worried about the growth in packages and question whether some are appropriately linked to performance. "They [executive salaries] are certainly approaching bigger sizes than I feel are justified," said Mr Dick Warburton, chairman of David Jones, Star City and Goldfields, and a Reserve Bank board member. Harvey Norman Holdings' executive chairman, Mr Gerry Harvey, is scathing in his criticism of the boards of poor performing companies that pay big packages to executives. "There is not enough penalisation for bad performance in this country. Most board members in public companies are overpaid," Mr Harvey said. "I'm talking about this in good times. What's going to happen in bad times? I think there would be a lot more people who would agree with me." Yet on the global stage, Australian companies are increasingly having to match the salaries being offered by their foreign counterparts to keep top people. "At the end of the day, we have to retain and attract top people. In terms of remuneration, we have to recognise we are increasingly operating in a global market-place," Mr Keith Ince, co-founder of Portfolio Partners, said. Mr Warburton agrees. "There is a competitive market out there. You might not want to pay someone a certain amount, but if you don't you will lose them," he said. Australia's major banks which this week will report annual profits of more than $7 billion provide the biggest options packages to executives. Among the current crop, Macquarie Bank chief executive Mr Alan Moss has the biggest-value options package. He was paid a base salary of just under $500,000, but has additional wealth through bonuses and options worth on paper more than $25 million. The strong sharemarket in recent years may have inflated the value of share options, but surprisingly few executive packages are being tied to performance incentives. Yet while shareholder angst continues about the extent of the salary increases and the lack of adequate hurdles, on the whole fewer chief executives are being rewarded these days for poor performance. Shareholders are also eyeing the introduction of a new level of remuneration disclosure over the coming years as a result of changes to the Corporations Law. New disclosure rules in section 300A require listed companies to name their top five salaried executives. But the regime under s.300A could potentially become much tougher next year if the recent recommendations of a parliamentary joint committee on corporations and securities are adopted. They make it mandatory for any listed company to discuss the board policy for determining the nature and extent of remuneration of board members and senior executives and the relationship between the policy and the company's performance. Not surprisingly, the salary accorded to News Corp heavyweight Mr Peter Chernin topped the list of top money earners at $18.78 million, followed by Westfield Holdings' founder and executive chairman Mr Frank Lowy at $7.64 million. The only woman making it into the table, Cochlear's managing director, Ms Catherine Livingstone, was underpaid on the basis of return on equity and share price appreciation. Livingstone received a remuneration of only $469,000. The explosion in share and option wealth in IT industries has created a new generation of young executive millionaires. TOP 10 EARNERS Peter Chernin, News Corp $18.8m Rupert Murdoch, News Corp $9.75m Frank Lowy, Westfield Holdings $7.64m Dennis Eck, Coles Myer $4.14m Alan Moss, Macquarie Bank $3.68m Des Randall, Aristocrat $3.14m Wal King, Leighton $3.11m Peter Ziegler, Village Roadshow $3.1m Paul Anderson, BHP $2.34m Leon Davis, Rio Tinto $2.08m This material is subject to copyright and any unauthorised use, copying or mirroring is prohibited. ************************************************************************* This posting is provided to the individual members of this group without permission from the copyright owner for purposes of criticism, comment, scholarship and research under the "fair use" provisions of the Federal copyright laws and it may not be distributed further without permission of the copyright owner, except for "fair use." -- Leftlink - Australia's Broad Left Mailing List mailto:[EMAIL PROTECTED] http://www.alexia.net.au/~www/mhutton/index.html Sponsored by Melbourne's New International Bookshop Subscribe: mailto:[EMAIL PROTECTED]?Body=subscribe%20leftlink Unsubscribe: mailto:[EMAIL PROTECTED]?Body=unsubscribe%20leftlink
