Royal Commission proceedings and declining public trust failed to dampen executive bonuses last year, with more than half of ASX100 CEOs receiving at least 70 per cent of their maximum entitlement, according to the latest analysis of CEO pay by the Australian Council of Superannuation Investors (ACSI).
ACSI CEO Louise Davidson said, ‘The way bonuses are being handed out suggests there is a culture of entitlement whereby supposedly “at risk” pay is not very risky at all. These payments occurred in a year when the Royal Commission was in full swing, revealing evidence that executives were not being held accountable for poor conduct, and in the wake of soaring “first strike” votes against remuneration reports. Clearly, corporate Australia is not getting the message that bonus payments should be variable and awarded for stretch performance, rather than being fixed pay under another name. This is a failure of both discipline and leadership.’
ACSI’s research lends weight to APRA’s recent observation that ‘there has been an absence of significant downwards adjustment to remuneration at executive level’ and highlights the fact that these issues extend well beyond the financial services sector.
Key findings from the research include:
Only one eligible ASX100 CEO did not receive an FY18 bonus – a record low. In FY17, six ASX100 CEOs did not receive a bonus.
The median ASX100 CEO received 70 per cent of their maximum bonus entitlement – a figure almost unchanged in four years. Only 7 per cent of ASX100 CEOs received less than 30 per cent of maximum.
The median bonus awarded to an ASX100 CEO in FY18 was $1.61m – the second highest in the history of our survey.
Ten CEOs realised more than $10m in FY18 (listed below) – three of them in the ASX101-200.
The median realised pay for an ASX100 CEO rose to $4.5m (realised pay includes the market value of equity at the time of vesting).
Exiting CEOs cost shareholders $25.15m in FY18, down from $33.63m in FY17 – largely due to a decline in the number of termination payments from 20 to 15.
Davidson also highlighted some promising trends in executive remuneration saying, ‘We have seen several leading companies lowering remuneration for incoming CEOs, reducing cash pay by deferring incentives into equity, and ensuring that incentives are subject to malus or clawback provisions where there has been poor performance.’
ACSI’s research will inform investors in assessing outcomes at ASX200 companies in the current round of results reporting and how they vote at the upcoming AGM season. ‘Investors want to see a greater focus from boards on assessing whether their existing incentive schemes are truly rewarding executives for exceptional performance, or just a top-up for meeting budget’, said Davidson.
ACSI’s report on CEO pay, the 18th in the long-running study, is the only one of its kind in the Australian market that calculates and investigates ‘realised pay’ (which includes cash and the actual value of equity that vested during the year).