Australian directors top of tree

AUSTRALIAN boards are paid the largest share of company profits in the Asian region, collecting more than twice as much as directors in Japan, a new survey has found.

By InvestSMART · 21 Sep 2012

By InvestSMART ·
21 Sep 2012

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AUSTRALIAN boards are paid the largest share of company profits in the Asian region, collecting more than twice as much as directors in Japan, a new survey has found.

Executive and non-executive directors' remuneration soaks up almost 2 per cent of Australian company profits, the highest share among 12 Asian countries, research by the broker CLSA shows.

Boards in Japan receive 0.75 per cent of profits and directors in Hong Kong and South Korea receive fewer than 1.5 per cent.

While the report rated Australian governance standards as the best in the region, it said firms in Western countries tended to pay their board members more because dominant shareholders played a lesser role than in Asia.

"Directors' remuneration is a much bigger issue in Western markets where CEOs and senior management are given generous options and run the company without a significant controlling shareholder to rein in compensation," the report said.

"In Asia, one of the benefits of family or individual-controlled companies is that compensation to senior executives is kept in check."

A previous study by the Australian Council of Superannuation Investors found the average non-executive director who was not a chairman received $208,000 in 2010, the latest year of the study. Despite the high share of profits going to Australian directors, ASX-listed firms were ahead of the pack on most measures in the report.

Australia had the highest share of companies with an independent chairman, at more than 80 per cent. In Singapore, fewer than 60 per cent of companies had an independent chairman, while in Japan, the ratio was fewer than 30 per cent.

Overall, the survey found Australian companies had the highest average corporate governance rating of 64.2, compared with an Asia-wide average of 52.6.

The findings were based on research into 864 listed companies across Asia-Pacific markets.

Three Australian companies - Newcrest, Brambles and BHP Billiton - were among the top-20 stocks for corporate governance.

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Frequently Asked Questions about this Article…

How much of Australian company profits go to directors compared with other Asian countries?

The report found executive and non-executive directors in Australia absorb almost 2% of company profits — the largest share among 12 Asian countries. By comparison, directors in Japan receive about 0.75% of profits, while Hong Kong and South Korea are under 1.5%.

Why does director remuneration tend to be higher in Western markets than in Asia?

The CLSA report notes Western firms often pay board members more because CEOs and senior managers receive generous options and run companies without a significant controlling shareholder to rein in pay. In contrast, family or individual-controlled companies common in parts of Asia can help keep senior-executive compensation in check.

Should everyday investors be concerned that Australian boards take a relatively large share of profits?

The article points out that although Australian directors take a higher share of profits, ASX-listed firms still scored well on governance measures. Australia had the highest average corporate-governance rating in the survey, suggesting investors should weigh director pay alongside overall governance quality.

What is the typical pay for a non-executive director in Australia?

A previous study cited in the article found the average non-executive director (who was not a chairman) received $208,000 in 2010. This figure provides historical context for non-executive director pay in Australia.

How does Australia score on corporate governance compared with the Asia-Pacific average?

Australian companies had the highest average corporate-governance rating in the survey at 64.2, compared with an Asia-wide average of 52.6, according to the research reported.

How common is an independent chairman at Australian companies versus Singapore and Japan?

More than 80% of Australian companies had an independent chairman. By comparison, fewer than 60% of companies in Singapore and fewer than 30% in Japan had an independent chairman, per the report.

Which Australian companies were recognised for strong corporate governance in the survey?

Three Australian companies named among the top-20 stocks for corporate governance in the survey were Newcrest, Brambles and BHP Billiton.

What was the scope of the governance survey and who conducted the research?

The findings were based on research into 864 listed companies across Asia-Pacific markets, and the research was reported by the broker CLSA in the survey referenced by the article.