CEO bonuses slip as profits are squeezed

CASH bonuses for the heads of Australia's biggest companies have fallen to levels not seen since before the financial crisis as profits and share prices have come under pressure.

By InvestSMART · 18 Sep 2012

By InvestSMART ·
18 Sep 2012

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CASH bonuses for the heads of Australia's biggest companies have fallen to levels not seen since before the financial crisis as profits and share prices have come under pressure.

The annual remuneration report by the Australian Council of Superannuation Investors showed average bonus payments of $1.25 million last year, their lowest since 2004. The bonus payments were 20 per cent below the previous year.

The ACSI report, to be released today, shows fixed pay of chief executives in Australia's top 100 listed companies held steady last year.

Overall, the average cash pay for a top 100 CEO declined by 8.9 per cent from 2010 levels to $3.05 million, reflecting the fall in bonus sizes.

The ACSI chief executive, Ann Byrne, said a more mature conversation on executive pay was taking place between boards and investors.

"It is clear that directors began listening to shareholder views on bonus sizes during 2011, and began making the adjustments that have continued into the first part of 2012," she said yesterday.

Even so, some 90 per cent of chief executives still received some form of bonus payment.

The analysis of remuneration for the nation's top 200 companies by ACSI, which advises the nation's biggest superannuation funds, throws new light on how much our corporate leaders are really paid.

It shows a gap between what is reported in company disclosures and what chief executives often end up taking home. Last year BHP Billiton's Marius Kloppers was paid $11.08 million but his realised pay was $17.3 million, the ACSI report shows.

Minimum disclosures often fail to take into account the upside chief executives receive from packages such as deferred bonus shares or cashing in on options - the right to acquire shares in a company often at a heavily discounted price.

The pay cheques of the nation's chief executives have grown at twice the pace of average incomes.

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Frequently Asked Questions about this Article…

What did the ACSI report say about CEO bonuses in Australia?

The Australian Council of Superannuation Investors (ACSI) found that cash bonuses for CEOs of Australia’s biggest companies fell to an average of $1.25 million last year — the lowest level since 2004 — and were about 20% below the previous year.

How did average CEO cash pay change and what is the current figure for top 100 CEOs?

ACSI reported that overall average cash pay for a top-100 CEO declined by 8.9% from 2010 levels, to about $3.05 million, a drop driven largely by smaller bonus payments while fixed pay remained steady.

Are most CEOs still receiving bonuses despite the decline?

Yes. Even with smaller bonuses, roughly 90% of chief executives still received some form of bonus payment last year, according to the ACSI analysis.

Why is there often a gap between reported CEO pay and the pay they actually realise?

Minimum company disclosures can miss the full upside of pay packages. Realised pay can include deferred bonus shares or the cashing in of options — rights to buy shares often at a discount — so reported pay may understate what executives ultimately take home.

Can you give an example of the difference between reported pay and realised pay?

Yes. The ACSI report cites BHP Billiton’s then-CEO Marius Kloppers: his reported pay was $11.08 million, but his realised pay was $17.3 million, demonstrating how disclosed figures can understate actual earnings.

What role have shareholders and boards played in executive pay changes?

ACSI’s CEO Ann Byrne said a more mature conversation between boards and investors developed, with directors starting to listen to shareholder views on bonus sizes during 2011 and making adjustments that carried into early 2012.

What should everyday investors take away about executive pay disclosures?

Investors should be aware that headline pay figures may not show the full story: look beyond fixed pay to the structure of bonuses, deferred shares and options, and consider realised pay data where available to understand true executive incentives.

How has CEO pay growth compared with average incomes?

The article notes that chief executives’ pay cheques have grown at about twice the pace of average incomes, highlighting a divergence between executive compensation growth and broader wage growth.