The Financial Review’s survey of executive pay makes interesting reading again this year. One of the most notable things to come out of it is that for the first time in a decade none of Australia’s CEOs made more than $10m.
But there were a few that came mighty close, with ANZ‘s Mike Smith, Westpac‘s Gail Kelly, BHP‘s Marius Kloppers and James Hardie‘s Louis Gries all bagging more than $9m and another seven making more than $8m.
All smiles for Mike Smith, but his real value to ANZ shareholders won’t be known for years.
But while the ‘two strikes’ rule may be having some effect at the top end, there still appears to be plenty of pressure from further down. The average pay for ASX300 chief executives rose 6% in the year to June to $2.5m, well ahead of economic growth, and the top 130 on the list made more than $2m. In case it needs saying, that is one hell of a lot of money, but it’s becoming pretty commonplace.
Let the free market do its work
No-one argues that executives shouldn’t be incentivized and rewarded for their achievements. The trouble is that, like politicians, chief executives can make all the popular decisions during their tenure, keeping their share prices bubbling along, but leave an almighty mess for their successors that only shows up years after they’ve cashed in their options.
So trying to control it through rules and regulations is doomed to failure. It might have its imperfections but the free market is the best thing we’ve got for assessing value and making investments, and this applies to paying chief executives as much as it does to building factories.
The vast majority of people getting upset about Mike Smith’s pay don’t have shares in ANZ and they should mind their own business – but so should ANZ shareholders.
Asking the awkward questions
Private investors are often the ones asking the hard questions at annual meetings over executive pay, but if any control is to be exercised, it needs to come from the institutions. They have the votes to do something about it, yet they never seem to. Perhaps they don’t want to bring bad publicity to their investments; perhaps they don’t want to draw attention to their own generous pay; perhaps they’ve simply lost touch with what constitutes a reasonable amount of money.
So the asset consultants and super fund trustees should be on their case. Every time fund managers are called in to justify their performance, they should be asked how they voted on executive pay.
The trouble is that often the super trustees don’t want to upset the apple cart either. And aside from writing awkward letters, taking your money to another fund or starting a self-managed fund, there’s precious little that members can do about it.
There is no obligation on super funds to hold annual meetings and there’s no right for members to vote on how they’re run. So long as trustees act within the strictures of the Superannuation Industry (Supervision) Act, there’s nothing members can do about it.
It seems the approach to super fund governance is for members to mind their own business – but with 12% of our earnings soon to be going into superannuation, it very definitely is our business.
If the government is serious about restraining excessive executive pay, this is where they should start.