Rising chief executive pay packets in investors’ sights

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Big increases in chief executive pay will be closely scrutinised by investors when annual general meeting season rolls around this year, after a survey found the fixed pay of ASX 200 bosses had surged up to 15 per cent.

A survey of executive remuneration by the Governance Institute of Australia found average fixed pay for ASX 200 chief executives – that is, pay before bonuses – rose 15 per cent to $1.14 million in the 2022-23 financial year.

The Governance Institute report said average fixed pay for ASX 200 chief executives rose 15 per cent to $1.14 million in 2022-23.Credit: Jessica Shapiro

It said average fixed pay for ASX 200 managing directors rose 14 per cent to $1.58 million.

The figures, based on data from 65 ASX 200 companies, point to senior executive pay rising at about twice the pace of inflation, at a time when real (after-inflation) wages for the average worker have been going backwards.

Governance experts said that if executive pay rises of this size were repeated across a wide range of companies, boards would face scrutiny from shareholders about the extent of the increases and whether they were justified.

‘That’s a significant increase, and retail shareholders, we really expect that we have a talented CEO leading the organisation.’

Australian Shareholders’ Association chief Rachel Waterhouse said remuneration would be a key focus area for the group this year, and it benchmarked CEO pay against average wages across the whole economy.

Waterhouse noted the Governance Institute data pointed to CEO pay rising at about twice the rate of inflation, and said retail investors would want to see the links between CEO pay and company performance.

“That’s a significant increase, and retail shareholders, we really expect that we have a talented CEO leading the organisation,” she said. “We want the best CEOs leading the organisation, but the ability to pay is linked to performance.”

“It will be interesting to see at the main AGM season what kind of packages are being put forward. They will be looking at their companies, they will be looking at the performance of their organisations,” Waterhouse said.

Waterhouse said boards also needed to consider how company culture would be affected by top executives receiving far bigger pay rises than most staff members.

Many Australian companies hold their annual meetings in the last quarter of the calendar year, after they have delivered full-year results.

Vas Kolesnikoff, head of Australia and New Zealand Research at proxy adviser ISS, said the increases were consistent with trends he had observed in the market, and in some cases he believed companies had increased CEO pay even more to retain executives.

“We’ve noticed over the last decade that C-suite and CEO pay has been increasing exponentially,” Kolesnikoff said. “Fifteen per cent seems on the low side. It seems to me, some numbers are even larger.”

While Kolesnikoff said the growth in CEO pay was “concerning”, he said ISS produced reports that assessed pay against company performance, and it was up to shareholders to decide on what they deemed appropriate. “If they are OK with that, they are the ones that are ultimately voting on these things,” he said.

Governance Institute chief executive Megan Motto said the increase in CEO fixed pay reflected the tight labour market and the rising cost of living, and it followed several years of “relatively small” fixed pay rises for top executives.

“With AGM season looming, boards will need to have a strong narrative around their remuneration policies to stand up to shareholder scrutiny and manage reputation risks,” Motto said in a statement.

The institute’s report did not name the companies it surveyed. A separate survey of executive pay by the Australian Council of Superannuation Investors last year examined which companies paid their CEOs the most in “realised pay”, a different metric that includes the effect of bonuses.

ACSI’s report, for the 2021 financial year, listed Afterpay founders Anthony Eisen and Nick Molnar as the highest paid on this basis, with realised pay of $264 million. Former CSL boss Paul Perreault ($58.9 million) was the next highest paid, followed by ResMed’s Mick Farrell ($37.4 million) and Goodman Group’s Greg Goodman ($37.1 million).

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