BHP chiefs cast aside wage restraint as pay shoots off the scale
The stark finding is in research that uses BHP records dating to 1887 to plug gaps in what is known about long-run trends in Australian executive remuneration.
"What we see is a relatively high ratio of BHP chief executive salary to Australian earnings at the turn of the 20th century, around 50 times average earnings, slowly dropping throughout the century, save for a spike in the Second World War," said Melbourne University economist Mike Pottenger. "Then with the arrival of Paul Anderson as chief executive in 1998 there's a vertical jump. He was paid more than 200 times average earnings.
"Anderson was the first internationally sourced chief executive since the very first, William Patton, who was hired for £4000 in 1887.
"Anderson's successors, Brian Gilbertson, Chip Goodyear, Marius Kloppers and Andrew Mackenzie, have all earned around 200 times the average - it has become the new normal."
Mr Mackenzie, who took charge of BHP last month, is expected to earn about 25 per cent less than his predecessor, Mr Kloppers, in a reflection of the tougher times being felt across the industry.
Even so, he can still earn a maximum of $US12.58 million a year if BHP performs exceptionally well.
Working with BHP historian Geoffrey Blainey and inequality researcher Andrew Leigh, who is now a Labor member of Federal Parliament, Dr Pottenger constructed a range of likely salaries for the years 1887 to 1984 using the few internal memos that mentioned salaries and the known relationship between the chief executive's salary and BHP director fees.
From 1987 he used the executive remuneration reported in BHP annual reports and later the total remuneration including stock options and incentives.
"At all times our estimates have been conservative," Dr Pottenger said.
"If critics want us to exclude the incentives and options, we are happy to point out that without them the CEO's salary is still 100 times the average - roughly double its previous peak and far higher than anything thought possible during the 1970s and 1980s."
Data provided by Egan Associates on the average CEO remuneration at Australia's top 100 companies for the past few decades suggests BHP's experience has been typical.
"In BHP's case, the merger with Billiton near the turn of this century made it a truly global company," Dr Pottenger said.
"Also just before the merger there was an air of desperation in the company. Its 1999 annual report was titled 'Under Pressure', the 2000 report was titled 'Coming out of a tight corner'."
He said BHP and other newly globalised companies "all want to hire a chief executive who is better than the global median".
"The only way to do that is to bid up salaries," Dr Pottenger said.
Frequently Asked Questions about this Article…
Recent research based on BHP records shows the company's chief executives have been paid roughly 200 times the average Australian earnings — a dramatic rise from about six to seven times in the early 1980s.
Economists used BHP internal memos and the known relationship between CEO salary and director fees to estimate pay from 1887 to 1984, and from 1987 relied on BHP annual reports that include total remuneration (stock options and incentives). The authors say their estimates are conservative.
The vertical jump occurred with the arrival of Paul Anderson in 1998. He was paid more than 200 times average earnings and was the first internationally sourced CEO at BHP since William Patton in 1887.
Even excluding incentives and options, the research finds the BHP CEO's salary would still be around 100 times the average Australian earnings — roughly double the previous historical peak.
According to the article, Mr Mackenzie (who took charge recently) is expected to earn about 25% less than his predecessor Marius Kloppers, but he can still earn up to US$12.58 million a year if BHP performs exceptionally well.
No — data from Egan Associates on CEO remuneration at Australia's top 100 companies suggests BHP's experience has been typical of a broader trend in rising executive pay among large firms.
The merger around the turn of the century made BHP a truly global company. The research argues globalised firms tend to bid up salaries to hire CEOs who are better than the global median, which pushed pay levels higher.
Long‑run data show CEO pay was relatively high around the turn of the 20th century (~50x average), fell through much of the 20th century (with a WWII spike), then surged after globalisation and the late‑1990s merger to become the new normal at around 200x average earnings. For investors, that highlights how structural changes (globalisation, company scale and market pressure) can materially affect executive remuneration over time.
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