Crocodile tears

Ross Gittins is finally gettin' around to discussing the executive remuneration study we threw into the Stew a few days ago. And his eyes are full of crocodile tears as he goes through that croc of data.

'The survey showed that, last financial year, the average total remuneration of the chief executives of Australia's largest 300 listed companies rose by 16 per cent to $1.9 million [ and that's PER YEAR]. This was 34 times the average earnings of an adult full-time employee.

Fair enough. What else is new? Perhaps we've finally learnt to see things from the viewpoint of the much put-upon CEOs.

As Don Argus, chairman of BHP Billiton and Brambles, explained to the Review, the debate about executive pay is often unfairly simplified, ignoring the components of executive pay packages. Good point. Did you realise, for instance, that the base salary of those 300 chief executives averages less than $700,000? That's a mere 13 times more than employees' average ordinary-time earnings. And chief executives' base salaries increased by just 6 per cent - the same as the increase in employees' average earnings.

The point is that this guaranteed portion of chief executives' incomes accounted for only about 40 per cent of their total remuneration. If you set aside about 10 per cent to cover perks and other benefits, such as retention payments (money to discourage executives from leaving the company), the remaining half is "at risk".

Think of it. How would you like to have half your $1.9 million dependent on you achieving certain targets, or on the company's sharemarket performance? Talk about stress. On average, "short-term incentives" - annual bonuses - were worth about $600,000, up 22 per cent on last year. What more proof do you need that chief executives were working their butts off last year?

And if you're not convinced these bonuses were seriously "at risk" - that the performance hurdles set for chief executives were, as we say, "stretch targets" - consider the sad case of Tom Park, chief executive of PaperlinX Limited. His company's shareholder return fell by 38 per cent during the year, with the result that his bonus was just a quarter of what it could have been.

It was only $386,000 - way down on the previous year's $722,000 - leaving the poor man with a total package worth barely more than $2 million. And to think there are still a few leftie troublemakers claiming executive salaries don't reflect company performance.

Long-term incentives account for the remaining $400,000 of the average $1.9 million package, but chief executives are anxious for the public to understand that such amounts aren't received in cash. They're just an accounting estimate of the value of the benefit conferred. So that's OK.

But, just to help keep your envy at bay, let me remind you that chief executives have a lot of worries and a lot to be unhappy about. That's clear from what was said to the Review in last week's study. The remuneration consultant chappie drew attention to the growing gap between the pay of chief executives and the pay of the handful of senior executives who report directly to them, which he put at a ratio of two to one.

Imagine the trouble those "direct reports" must have, controlling their covetousness. How would you like to earn just half the $1.9 mil of the bloke only one slot above you? And how would you like to be a chief executive, worried on the one hand that you're earning too much more than your offsiders while knowing that, from the viewpoint of the country's good, you aren't earning enough?

Chief executive salaries in Australia are still well behind those paid in the United States. And, as Michael Chaney, president of the chief executives' union (otherwise known as the Business Council of Australia), told the Review, "if we don't offer world-class remuneration, we have to accept that there will be a much smaller pool of talent available to run our companies".

Chaney explained that chief executives' remuneration reflected a world market and the much higher level of public scrutiny they now face. "Being the CEO of a major corporation, particularly a listed corporation, is becoming a higher-risk job and that increased risk is reflected in increased remuneration." What's more, "the disclosure requirements on listed companies can lead to highly intrusive public discussion and scrutiny of individuals' remuneration".

But don't reserve all your sympathy for chief execs. Although average directors' fees have risen to about $120,000 a year, independent company directors (many of them retired chief executives) are also doing it tough. John Morschel, chairman of Rinker Group Limited, said: "No level of fees can compensate for the increase in personal liability and this factor alone is making it hard to attract the right calibre of director."

Argus, of BHP Billiton, noted that its directors had to attend seven meetings a year. If they were coming from the US, "they are not going to do that unless it's worthwhile".

Robert Savage, chairman of Perpetual Trustees Limited, told the cautionary tale of the chief executive of a large company he'd spoken to recently who had considered giving up and becoming a professional director on several boards. It just wasn't good enough. "Why would I go from the opportunity of maybe $2 million to $3 million a year with half of it being at risk," the other chap had said, "to a guarantee of half a million if I can get five company directorships - it doesn't equate."

See? It's tough at the top. But here's the amazing thing: all the chairmen told the Review they still had plenty of volunteers for the top jobs."

It's too bad Ross missed that little slight of hand that Michael Chaney tried to pull, comparing Australian executive remuneration to the "much higher paid" US executives as more evidence they are underpaid here. That's exactly the opposite of what they do when they talk about regular employees. In that case they bleat and piss on about how that same job could be had for one-tenth the cost in some foreign country like China or India.

How do they have the gall to compare their wages to higher paying countries while comparing the wages of the lower rung employees to the lower paying countries? (Don't bother; that's rhetorical.) One of these days I'm going to try to organise some thoughts around the matter of the "management class" concept broached in a prior post.