CHALK up another "doh!" moment for the shareholder activists celebrating cuts in executive bonuses and the victorious impact of the wrong-headed, two-strikes law.
It would be nice to see absurd remuneration levels reined in, but bonuses are not base pay and anyway, the timing is all wrong and driven by the wrong reasons.
As is usual with laws inspired by polls and public outrage, their implementation is likely to achieve precisely the opposite of their intent to ensure that senior executives are paid appropriately for what they really achieve.
Surely it makes more sense to pay good executives good money in tougher times, rather than heaping undeserved riches on their marbled doorsteps in an economic cycle where a semi-trained monkey could raise profits and dividends.
Insider makes no apology for the many overpaid and under-performing executives of the boom cycle. Many have gone, and there are more who should (along with the boards that have failed to recognise the need for that purge).
And there is no doubt that a pay rise for the boss who has sacked buckets of loyal workers is not a good look except maybe to those who keep their jobs because the company has survived.
Executives who rode the boom into the bust should not, though, get any sympathy. The old saying that "companies don't get into trouble in bad times, they get into trouble in good times" holds true.
The sad thing is that really good executives who are now trying to preserve, save, revive and improve companies in far tougher economic times may not now be appropriately rewarded for their efforts because of the greed that went before and directors covering their shiny bums.
Where, though, were the bunnies now cheering on pay cut penitence when company shares were soaring, dividends were rolling through the door and superannuation returns were bountiful?
Insider guesses that they were busy enjoying the same fruits of an absurdly long, rich and (belatedly) unjustified boom in Western financial markets and economies. But now it hurts, mum. And it's not fair. And it must be someone else's fault.
Since reality bit from 2007 onwards, the fiscal version of the Spanish Inquisition has been visited on corporations and governments for loose practices and obscene greed. Fortunately, stupidity is not a crime.
Shareholders, large and small, are themselves as much to blame as company boards for accepting ridiculous rationalisations for over-compensating executives, although at least the "global benchmark" sophistries used to justify stratospheric salaries in the US, UK and Australia, have been debunked.
Perpetual chairman Peter Scott's laudable decision in June to chop his own salary has been a standout of the hair-shirt season for two very good reasons.
Firstly, it was a real pay cut because non-executive directors like Scott do not get bonuses. Insider would be more convinced about a turning tide if executive base pay was being shaved, rather than a bit of bonus back-pedalling.
Secondly, Perpetual has finally acknowledged that its board fees were seriously out of whack with reality. The company had been paying more than $400,000 to its chairman since at least 2007.
Perpetual's market worth was $3 billion then, and is now $1 billion. Back then National Australia Bank was valued at more than $60 billion, and is just under that now, yet its chairman was also only getting $400,000-plus in 2007 (Mike Chaney now gets nearly $800,000).
Insider had a quick look at a few of Perpetual's market cap peers, and found that base chairman's fees ranged from $160,000 at Super Retail Group (it will make more profit than Perpetual this year), up to departing Myer Holdings chairman Howard McDonald's $500,000 (and Myer will more than double Perpetual's earnings).
Small but comfy
EUROZ Securities continues to set the pace for ASX profit reporting, releasing its results three days after balance date, and disclosure on the earnings and salary structures in a stockbroking house.
The Perth-based wealth manager suffered a more than halved profit, which is not too bad considering, and the profit share pool for its executive directors was sliced by more than 25 per cent to $440,000 each.
The declaration for retail client star James Mackie also showed how different life is for those at the small end.
Euroz executive chairman Peter Diamond explained to Insider that Mackie's apparently out-of-step salary, of less than $50,000, was because he was one of the few executive directors from the retail side. He did make more than $400,000 in commissions.
Top earner for Euroz was corporate finance man Maurice Argento who picked up nearly $900,000 and then left the building on June 30.
Frequently Asked Questions about this Article…
What is the impact of the two-strikes law on executive bonuses and investor outcomes?
The article argues the two-strikes law has encouraged cuts to executive bonuses that are driven more by public anger than good governance. While activists celebrate bonus reductions, the piece warns these moves can be mistimed and may punish executives who are trying to preserve and revive companies, potentially producing the opposite of better long‑term outcomes for investors.
Why might cutting executive bonuses be the wrong way to manage executive pay during a downturn?
The article points out that bonuses are not the same as base salary and that bluntly cutting bonuses can remove incentives for strong executives working in tough conditions. It suggests paying talented leaders appropriately in hard times makes more sense than retroactive penalty cuts that can deter the people needed to save and improve companies.
Which company example in the article shows a voluntary chairman pay cut and why does it matter to investors?
Perpetual chairman Peter Scott is highlighted for voluntarily cutting his own fee. The article says this mattered because it was a genuine pay cut for a non‑executive (who doesn't receive bonuses) and because it acknowledged the company’s board fees had become out of line with reality — a disclosure investors can view as a positive sign of accountability.
How have chairman fees compared with company market values according to the article?
The article notes that Perpetual paid more than $400,000 to its chairman since at least 2007 when its market worth was about $3 billion, but the company is worth about $1 billion now. It contrasts this with National Australia Bank — valued at more than $60 billion then and just under that now — whose chairman (Mike Chaney) now receives nearly $800,000, illustrating that fees didn’t always track changes in market value.
What did Euroz Securities do to adjust executive pay after a fall in profits?
Euroz Securities released results quickly and disclosed cuts to its executive profit‑share pool: profits more than halved and the profit‑share for executive directors was reduced by more than 25% to about $440,000 each. The article also notes pay differences within the firm — for example, retail star James Mackie had a low base salary but earned over $400,000 in commissions, while corporate finance head Maurice Argento earned nearly $900,000 before leaving.
Are shareholders held responsible for high executive pay in the article?
Yes. The article says shareholders, both large and small, share blame with boards for accepting rationalisations that justified oversized executive pay. It argues that commonly cited 'global benchmark' justifications for stratospheric salaries have been debunked and that shareholder complacency contributed to the problem.
What practical things should everyday investors look for when assessing executive pay disclosures?
Based on the article, investors should distinguish base salary from bonuses and profit‑share arrangements, check whether board and chairman fees are in line with peers, and look for transparency about pay structures (as Euroz and Perpetual provided). These signals can help investors judge whether pay aligns with company performance and long‑term shareholder interests.
Will cutting executive bonuses necessarily lead to better corporate governance and investor returns?
The article cautions that cutting bonuses alone is unlikely to guarantee better governance or returns. It argues such cuts can be symbolic, mistimed, or motivated by public outrage, and may unintentionally penalise competent executives working through downturns — meaning the net benefit to investors is not assured.
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