Time for executive pay action
How much longer are shareholders, both retail and institutional, going to tolerate executive pay excesses and greed? I am appalled at some of the current annual reports and forecasts.
There was a sense, a few months ago, that reality was starting to kick in with a number of companies reporting executive pay restraint. Among them was ANZ claiming to freeze the CEO’s pay, a somewhat disingenuous claim knowing that they really meant a freeze on his base pay, at a mere $3.15 million. It is now reported that his $10 million pay will exceed all other bankers although ANZ only ranks third in size.
Shareholders should attend the AGM and ask what the ANZ CEO’s hurdles were for his short term incentives, the real contributor to the fantasy-land pay packet. If you get a straight answer, it will probably be because he essentially ‘met his target’ – well is that not why we pay him a very substantial basic wage? Has he really outperformed his peers? What are his actual targets for next year?
Shareholders, including institutions and proxy advisers, should also ask, when shareholders are already paying CEOs huge packages, why we need to also pay for their private tax advice – it is outrageous that they see this as an additional private perk payable by the company owners. Who gives them this authority? Last year we shareholders footed the bill for Mike Smith’s ‘parking, life insurance and tax advice’ to the tune of $105,500. This year it is reportedly $121,900, an increase of over 15% and somewhat more than the annual wage of a well-paid middle manager. Next year will we pay for his groceries and his airfares for his holidays? Where does it end?
The worst part of the ANZ story, in my opinion, is that earlier this year the CEO announced that 1000 jobs would have to go urgently to cut costs. And then he accepts a fabulous increase himself when he was already hardly underpaid. Surely we also have a moral responsibility to staff and the community, never mind the shareholders? And if management had their eye on the ball why did they not see the 1000 positions becoming steadily redundant over the relevant period and not simply have a 1000 job-cut ‘light bulb moment’ one morning.
This largesse is not restricted to ANZ. Shareholders should look at the other annual reports – compare similar company results and assess whether the CEO really is performing and earning his or her bonuses. The banks are a good place to start. Yes they are doing well (all of them) so is it really the genius of the CEO’s? The CEO of Suncorp this year had an increase to earn him the same basic as the CEO of the seven times larger Commonwealth Bank – how does that work?
We as shareholders cannot achieve reform on our own. We need to speak with a strong voice. We believe in attracting the best talent but we also need a reality check on value. If other readers feel similarly disgruntled I would welcome feedback to firstname.lastname@example.org so we can start an action group for corporate governance and responsible executive pay reform. It is time for a wake-up call to all non-executive directors responsible for this. To do nothing will ensure more of the same!
A SMSF snapshot
I enjoyed Robert Gottliebsen’s article in the November 16 edition of Eureka Report, regarding SMSFs.
I have been managing my own SMSF since 1994. I set it up with the aid of my accountant and it has run well since then. I retired in 1996 at the age of 50 and continued to manage the fund, largely without the use of financial advisors, whom I found fairly useless and more concerned with their income, rather than mine. With my accountant’s aid in keeping it on the straight and narrow I have managed to run it within the points raised in this article. My total yearly fees are about $2,500 which is what my accountant charges to prepare the yearly audit and tax return – plus, of course, that money grab $200 (and increasing I believe) regulatory fee from the ATO for which I get I am not sure – and this equates to (known) fees of 0.25%, which I reckon is pretty good. My fund returns about $80,000 in yearly income plus a small capital gain which is quite sufficient for me to live well on.
I very much doubt if a commercial managed fund could give me those returns for those fees.
Tim Treadgold, thanks for the excellent précis (Shale shock … energy investors wake in fright).
It is always pleasing to read factual and intelligent reports in Eureka Report. Amidst the confusion in local press, topped by the utopian solution by Christine Milne to the effect that it is absolutely essential that we move away from coal and move to 100% renewable energy as soon as possible.
The federal government is spending big to reduce greenhouse gasses to no avail, simply because there is a strong global demand for coal and the US economy is awash with gas. Australia's coal production is said to be about 6% of global production thus it is unlikely that we can make a dent in global emissions. Moreover, it is highly unlikely that global producers will forego this wealth any time soon to please the Greens’ costly push.
To reader more Eureka Report letters, click here.