Bonus bonanza for chief executives

Investor pressure has kept the pay of Australia’s top CEOs in check, but they’re still enjoying their bonuses.

Domino’s chief executive Don Meij. Picture: Annette Dew.

Investor pressure has kept the pay of Australia’s top CEOs in check for the best part of a decade, but it’s still far easier for our corporate leaders to get bonuses than miss out on them.

The Australian Council of Superannuation Investors’ latest annual survey of CEO pay shows that 86 per cent of ASX100 CEOs collected a bonus in 2015-16, with the median bonus at 69 per cent of the target amount.

“A bonus is commonly understood as something paid for exceptional performance. The pre­val­ence of CEO bonuses at consistently high levels raises serious questions about the way performance hurdles are being designed and applied,” said ACSI CEO Louise Davidson.

“Companies need to explain more of the ‘why’ of their remuneration decisions to their investors — for instance, why is that percentage fair and reasonable, having regard to company performance?”

The findings suggest that executive bonuses are better described as “variable fixed pay”, rather than genuinely at-risk performance pay, the ACSI said.

The largest cash bonuses were paid to Westfield’s co-CEOs, brothers Peter and Steven, while Macquarie Group’s Nicholas Moore topped the accrued bonus list at $17.7 million. His cash bonus was $5.3m.

Fortescue’s Nev Power collected 108 per cent of his “normal” bonus in addition to a special incentive of $2m for “outperformance”, while Alumina’s Peter Wasow received 175 per cent of his standard bonus for renegotiating the terms of Alumina’s investment in AWAC.

On the other end of the spectrum were those who didn’t receive a bonus at all, including Fairfax Media’s Greg Hywood (the only ASX100 CEO to receive no bonus for two consecutive years due to performance hurdles not being achieved), BHP’s Andrew Mackenzie and Origin Energy’s Grant King.

The report, by research firm Ownership Matters, also found that CEO pay has moved sideways over the past decade as companies continue to curb pay increases and cut base salaries when new CEOs come on board. The average CEO pay rose 1.4 per cent in 2016 to $1.89m, well below the 2009 peak of $2.02m.

The most recent example comes from steel manufacturer BlueScope, which this week confirmed Mark Vassella will take over from current CEO Paul O’Malley next year. Vassella will pocket $1.8m in fixed pay compared with O’Malley’s $2.1m.

The fall in CEO pay in recent years can also be partly attributed to the two strikes rule, which gives shareholders a binding vote on executive pay by forcing a board spill when more than 25 per cent vote against the company’s remuneration report in two successive years.

The median pay for ASX100 CEOs last year was $1.79m, down from 2012’s peak of $1.95m. In contrast, in the US, where there is no such binding vote, the median salary for an S&P 500 CEO rose from $11m to $12.1m last year, according to ISS Analytics.

Flight Centre’s Graham Turner was the lowest paid CEO in the ASX100 on a statutory basis, and the only one paid less than $500,000.

ACSI, which speaks for 37 local and international funds and institutional investors managing over $1.6 trillion in assets, also pointed out the discrepancy between CEO statutory pay and take-home pay.

Statutory pay for Domino’s Pizza’s Don Meij was $4m for the year, but he took home $21m after including options he received at $8.97 but didn’t exercise until the share price was above $46.

Aside from Mr Meij, three other CEOs earned more than $20m in realised pay in 2016, with Lowy brothers Peter and Steven topping the list at $26.2m and Macquarie Group’s Nicholas Moore coming in a close second with $25.7m. James Hardie’s Louis Gris placed fourth with $21m.

Among the new entrants to the top 10 list were CBA’s Ian Narev who collected $12.2m.