Executive pay rumbles
We now vote against the remuneration report for every company AGM. As long as all the executive pay scales quote the need for “keeping up with the Jones’” for maintaining their astronomical pay and bonus rates, there can never be sanity. Our top politicians, public servants, academics, scientists, doctors – all the people who really make the important decisions – are paid far less than the CEOs of our big companies. If we all voted against these inflated and self-regulated pay scales we might make some difference. Nobody needs an income of more than one million dollars per year. Let's all do it!
A first strike for banks?
Next week sees the 2012 AGMs of ANZ, Westpac and NAB. I have to conclude that it is time for a wake-up call to their boards with ‘first strike’ warnings from shareholders.
I have just received and analysed the 2012 ANZ report and it yet again reflects alarming executive remuneration excesses. CEOs understandably grab whatever boards offer them and shareholders, usually institutions, ‘approve’.
According to the ANZ remuneration report, the CEO actually received a staggering $17.2 million in 2012, some of which had been deferred from previous years but at no stage has his previous take-home pay left him short of a good living. Each year from here on his STI and LTI bonuses will vest and flow unabated, measured against achieving targets set by the board for which he gets paid a comfortable basic wage.
Looking at some facts from the 2012 annual report:
‘Profit attributable to shareholders’ (the real result!) $5,661 million, up 5.7% - good but not exceptional
‘Underlying earnings per share’, increase 3.2% - OK? These are the true results of his stewardship – he has little control over share price volatility.
Fixed remuneration: $3,150,000 (CBA $2,500,000) Cannot change that now – but does question the need for huge bonuses. A comfortable reward by any standard.
‘Non-monetary benefits’: Over and above 2012 fixed remuneration , STIs and LTIs, reportedly totalling $10.1 million, the board has approved a 15% increase from $105,500 to $121,900 for the CEOs ‘car parking, life insurance and taxation services’ and fringe benefits tax on these benefits. Does the board seriously believe he is not well enough paid to cover his own personal expenses? Or at least pay the fringe benefits tax?
Bonus 1: Short-term incentives: ‘a target opportunity’ of $3,150,000 but the board approves a 17% premium to $3,700,000 – for achieving what you would expect from a CEO – he has not projected earnings into the stratosphere (5.7%)
Bonus 2: Long term incentives: What a perk! We would all like to be given ANZ shares at $9.65! Last year shareholders ‘approved’ granting of ‘performance rights’ (read ordinary shares) to the value of fixed remuneration of $3,150,000 – sounds good to lock in long-term incentive! But then they value the shares at less than half the market price at the time ($20.93). So effectively if he performs as he should, at 75% of his ‘peers’, he will receive not $3,150,000 but $6,832,000 for his LTI alone for last year. If his performance is just average he will get half which is $3,416,000 (still way more than $3,150,000).
And shareholders are being asked to approve another ‘performance rights’ grant again at this AGM – I would have less of a problem if they were valued at market value on the date of granting which would then clearly align with shareholder interests. Then if the value goes up we all benefit and if not he shares in our pain.
I can only repeat my previously stated position that executives should be well and competitively paid but there is a limit as to how much one brain can influence the fortunes of a company particularly when they are not the founding entrepreneurs.
ANZ is not alone in this. The other banks all take shareholders for granted especially when yield is better than the alternatives but it does not make it right. I can think of better ways of building value in the banks than paying outrageous bonuses.
It is time we questioned proxy advisers, super funds and other fund managers as to why they frequently allow this to continue – after all, at the end of the day, they are only representing smaller investors and not their own money. Perhaps they know something we don’t and should share it!
A first strike for ANZ, Westpac and NAB next week would start a more meaningful dialogue to align remuneration with shareholder interests. After all, the boards and not the CEOs approve these packages.
Just wondering how much longer you plan to feature The Speculator? His serial losses over recent years continue to mount, for instance his own stats show a loss YTD of 23.84% against a gain of 7.66% on the All Ords (that's an awful lot!). Come the New Year, he simply adopts the latest year end valuations (that's what the asterisk means against his cost figures, isn't it?), leaving his losses behind, but still has been sinking without trace, or so it seems to me. I cannot find back numbers on the Eureka site to elaborate. After following him for about three years, it has left us with a big hole of around 50%, which is compounded as it seems every company on his list, when they're about to get interesting, waters us down with a placing. Time he retired, isn't it?
I note your report about the results of Starpharma's clinical trial and take objection to the inaccuracy of your report. I have read the reported results of Starpharma and disagree with your conclusion. An extracted quote: "In each study 50% and 57% women, respectively, achieved Clinical Cure with VivaGel® versus just 17% and 21% with placebo (p<0.001) at EOT." What the trailed failed to do was achieved sustained cure 2 to 3 weeks after ceasing treatment. This is a disappointing result but given the nature of the condition and absence of alternative effective treatments means Viragel is likely to continue to be prescribed particularly as physicians reported positive anecdotal results.
I have worked in the medical industry for over 15 years marketing many products and one poor clinical trial does certainly cause some problems but is rarely a business breaker. The response of the market last week was to me excessive and a misunderstanding of the results and of the implications of the results on their marketing efforts. Further as you correctly point out the potential of other applications remains promising. Rather than be a hold recommendation this is a buy opportunity. Albeit still a high risk enterprise, but that the nature of the sector.
I have shares in Starpharma but no association with the company.
Editor’s response: It should be remembered that Collected Wisdom is neither necessarily the opinion of Caleb Samson, nor of Eureka Report. Rather, it is a column that collects the general comments and calls being made by the various investment publications and writers in Australia. The item agrees with many of the points you raised, however it may have been more clear to have included the full comment made that placebo rates were unusually high “at some sites”, rather than in general.
Golden gate board confidence
Was wondering whether David Haselhurst had any comment about the proposed changes to the board of Golden Gate Petroleum which indicates that a number of shareholders have lost confidence in (some) the current board?
Annuity counterparty risk
Why would you take out an annuity with Challenger when their stock price has fallen from $5 to $3 since March 2011 and going down?
It doesn't give one much confidence that they will be around in ten or twenty years to service their commitment.
Just want to know will The Speculator take any stock in Viralytics share plan offer?