Added by Elivia DeVries on November 1, 2012
The Business Council of Australia president Tony Shepherd called for an end to the era of excessive chief executive salaries on Friday as economic and productivity pressures realign interests with shareholders.
A greater focus on incentive-based remuneration had emerged as executive salaries had come off in recent times, said Mr Shepherd, and this was a side benefit of the tightening economy, intense competition in business and the move to improve productivity.
“‘It probably didn’t get as bad as it did in the US or the UK, but I think there were signs of it here and it’s definitely come to an end,”’ he said.
Speaking after the annual general meeting of Transfield Services, which he chairs, Mr Shepherd said chief executives could get a reasonable, but not excessive, base salary and they could still make money if they delivered superior performance.
“‘This means, I think, executive salaries are getting more closely aligned with the longterm interests of shareholders, so that has been one of the benefits of this whole shake-out,”, he added.
Mr Shepherd pointed to new Transfield chief executive Graeme Hunt as a case in point. Announcing his appointment yesterday, Transfield opted to start him on a lower base salary of $1.5 million than his predecessor Peter Goode, who started in 2009 on $1.75m.
Michael Robinson, from Guerdon Associates – which advises boards on remuneration – said chief executive salaries disclosed so far had flattened with about 30-35 percent of chief executives receiving little or no pay increase in the 2012 fiscal year.
“You’ve got a fair chunk receiving no increase at all, and of those getting increases you could break down into a third getting low increases of 2-3 percent and receiving modest increases like the average employee of 4-4.5 percent”, he said.
An increased rate of executive turnover has also resulted in a fall in fixed remuneration.
“What we’ve seen this year is a lot of executive turnover and that’s what is actually feeding the reduction across the board of fixed remuneration,” said Aaron Bertinetti , a governance and proxy adviser.
In the past year a long list of companies in the ASX 300 have changed their chief executive officers including Boral, Toll Holdings Group, Commonwealth Bank, Perpetual and Billabong