Time for SMSF action
The reporting season is over and we now await the detail in the annual company reports to be presented at the AGMs. There will no doubt be keen interest in the remuneration reports particularly in view of the two strikes legislation.
As a retail shareholder and SMSF trustee I am pleased to read the media commentary on executive remuneration ‘restraint’ this year. It is long overdue. The debate is well under way as to what constitutes ‘enough’ to reward competent executive employees who have not started the businesses nor invested significant resources of their own. Some are simply keeping the seat warm in companies that have existed for generations.
The euphoria about executive restraint is a little disingenuous in many cases when you look at the facts.
One newspaper report referred to the Commonwealth Bank's former CEO and his final remuneration potential of $9.6 million for this year. I seem to recall that he missed a customer service bonus hurdle last year but the board magnanimously used shareholders' money to reward him anyway - so why bother with hurdles? And why did his successor, according to the same report, get a 100% pay increase because he was promoted up a rung – an obvious opportunity to have shown restraint.
It is interesting to note that, like a few others, the CEO of ANZ will have a ‘pay freeze’ this year on base pay. But I see no undertaking to forego bonuses which are the real issue. At CPI the potential ‘pay freeze’ would equate to about $100,000 out of a package in 2011 of about $8-12 million – not a big deal, especially when there is an urgent need to cull 1000 jobs to save money!
Short term incentives, equal to or greater than base pay, are often paid, effectively, for just doing the job. Again by way of example, according to the 2011 ANZ remuneration report, STI's are paid dependent on performance (for a basic wage of $3.15 million don't we expect performance?) and "provided that there have been no inappropriate behaviour or risk/compliance/audit breaches". Really? That is dismissal stuff not a bonus hurdle or are we shareholders missing something? In 2011 the ANZ board used its discretion to further increase the CEO's STI to $3.3 million "having regard to his delivery against a balanced scorecard of (unspecified) objectives...". Total shareholder return for the year was negative 12.6% or an average of just 2.4% over 5 years. It is no wonder shareholders are unhappy. And we haven't touched on long term incentives yet! Or the payment of private tax consultants.
To really take credit for sharing the pain with shareholders and retrenched staff, all executives should, like Bendigo and Adelaide Bank, very carefully consider their claims on bonuses. The executive largesse here and internationally is finally under scrutiny. Nobody begrudges good pay for good people but some good people believe too heavily in their own publicity - show us the money! Bonuses need to be aligned with growth forecasts and actual shareholder returns for that company – and not a sector average as per the banks.
For good corporate governance, transparency of process and to avoid directors' conflicts of interest it is time for independent shareholders to have an elected seat on the remuneration committees to ensure all interests are being considered. It simply is not good enough to suggest that non-executive directors on these committees impartially represent shareholders when they clearly have vested interests.
It is time for a collective voice of SMSFs (letter to Eureka Report 25 July) to exercise their considerable power at AGMs, by proxy or personally, to hold boards to account. In turn, institutions need to be accountable to their clients and investors if they support these fantasy-land remuneration packages.
Super hocus pocus
I just read Robert Gottliebsen’s latest article regarding the costs of an SMSF and concur with your synopsis. There is so much hocus pocus spread by the professional fund management bodies on the costs of running an SMSF it drives me mad thinking what poorly educated punters must have to put up with. I have run my SMSF for 15 years now, it is in pension mode and has included in its assets an Australian office building, an overseas residential rented investment property, plus shares, bonds and cash to the value of about $1.5 million. I do all the trading per se and when my original "SMSF bookkeeper" was taken over by an IOOF subsidiary and they attempted to put the fees up from $2,000/annum to $4,800, I found a local country accountant with in-house auditor who quoted me $800/annum for audited accounts. I send them all the usual bank, CommSec material and spreadsheets electronically in July and get pro-forma accounts back in about three months followed by audited accounts within another month. I never set foot in their office and do all corresponding electronically from my farm in the Victorian countryside. By the way I have averaged about 11-15% per annum through the GFC with the help of the Eureka Report education and the Marcus Today Report and Lincoln Stock Doctor. My fund balance has grown over the last three years even though I'm drawing a pension. The professional (ho ho) financial services industry has a lot to answer for their crappy canned advice, high fees and poor returns. Keep up the good work at Eureka Report.
Value in Exco?
I have been watching Exco Resources (EXS) in the past few weeks and have seen it climb considerably in that time (30%). It has about 14.5c per share in the bank and has a good track record for finding good copper ore.
Ivanhoe have just sold its shares, and its next drilling update is this week. I’m just wondering what would be one of the expert’s opinions on the stock?
The company seems like a good value stock, albeit a resource stock in a declining commodities market.
Editor’s response: In case you missed it, Tom Elliott mentioned Exco in his column this week, and much of that share price rise can be put down to a takeover offer from Washington H Soul Pattinson (SOL).
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