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Christmas is coming so a ho ho whole lot of cash is paid to executives again

'TIS the season to be outraged.

'TIS the season to be outraged.

Each year, a few weeks before the fat man attempts the impossible, squeezing an ever larger frame down the same old chimney, we bear witness to a remarkably similar ritual as, en masse, our corpulent captains of industry and finance stuff ever more loot into those overstretched stockings.

Resurrecting the Anzac stoicism that made this nation what it is, they disregard weather, health of the economy, the state of the stockmarket, shareholders, community standards and even their own performance, all in the noble quest of providing society with a sense of stability that in a world of turbulence and upheaval, some things never change.

This is no easy task. It requires dogged determination and extraordinary ingenuity to ensure total executive pay rises at a vast multiple to inflation and average salary each and every year.

Consider the obstacles that have been placed in their way, even in the past decade. Disclosure regulations, increased scrutiny by shareholders, not to mention the arrival of those ridiculous proxy advisory groups jumping up and down, stirring up all sorts of trouble with those trade union superannuation funds.

Even the Productivity Commission stuck its unwanted oar into the waters, first by giving owners the right to vote on executive remuneration. And then, horror of horrors, it this year upped the ante by convincing the government to make that vote binding. If more than a quarter of shareholder votes deliver a thumbs down two years running, the board is spilled. What on earth were they thinking?

So far, however, I am pleased to report this New Bolshevism has had little impact, although your correspondent was appalled the Leighton Holdings board last week withdrew a $5 million transition bonus for long-time generalissimo Wal King and threatened to not come across with his $6 million consultancy payment, leaving him with a mere $18 million for his final glorious year in the hot seat. Let's hope he sues the pants off them.

Clearly this was some kind of lily-livered sop to the owners, all of whom have an undeclared conflict of interest they are only unhappy because their shares are down 35 per cent.

Apparently the shareholders were also twitchy about David Stewart's $7 million termination payment. For what reason? He was terminated. And he was chief executive for almost eight months.

So far, though, we've had about a dozen companies refusing to buckle to these new draconian measures, taking one for the team and bravely enduring strike one, including my good friend James down at the casino. As he said, give me two strikes and as the biggest shareholder, I just won't call the meeting to oust them. Nice one, Jimmy.

But the real onslaught will occur during the next fortnight. Like earnings results, most companies hold their annual meetings as close to the deadline as possible, which in this case is the end of November, so that dozens of them are crammed in at various locations around the country all at the same time.

This has the happy advantage of diverting the attention of shareholders, many of whom can't get to all the meetings and so are denied the chance to moan, and journalists, who can't find enough room in the newspapers to fit all the nasty carryings-on. Ha!

Lately there's been quite a bit of idle chit-chat about bonuses and hurdles.

To the great unwashed, a bonus is regarded as a little sweetener, a bit of extra change for an ale at Christmas, handed out to those who work hard and deliver a great result. It even says that in the Macquarie Dictionary. I can only imagine how Alan and Nicholas must have laughed when they slipped in that one.

No, no, no. A bonus is far and away the biggest part of your salary. And hurdles? If you've been to an athletics track lately, you'll see they're light, adjustable and easily removed.

It works like this. Your cash pay is a million or two, peanuts really. But then you have your short-term bonus. That's usually paid in cash the following year. And it is usually about 150 per cent of your salary.

Then comes the long-term bonuses. They are usually paid in shares, over a couple of years and they should be worth many, many times your annual salary. Then there is a whole range of other incentives that come attached to equally mobile hurdles.

In times such as these, with the stockmarket heading south, the hurdles need adjusting. What is the point of having incentives if you can't hop over hurdles?

Just ask Lance Hockridge at QR National. Is it his fault it rained a lot this year? No. What about Dicky Goyder at Wesfarmers? Is it his fault he bought Coles using shares that diluted the company's return on equity? Well, maybe, but that's hardly the point. Richard wanted that $6.7 million bonus and so he should be entitled to it.

The beauty of this system is its sheer complexity. You can shave a little off one end and claim you've taken a pay cut and whack some on the other end and claim you may not ever receive it because of the hurdles.

When the sharemarket dives, like now, you can credibly argue for a bigger slice of cash because your overall package is worth less. That automatically pumps up next year's short-term bonus. And by that stage, hopefully the market would have recovered and your long-term share bonus would be humming along.

Our system of executive salaries has evolved over many years, absorbed countless hours of management time and given rise to an entirely new industry remuneration consultants.

It should be treated with the respect that it deserves.


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