A recent Melbourne University Centre for Corporate Governance and Regulation (MCCGR) study: CEO Compensation in Australia Global Benchmarking Study, has found little evidence that ASX 200 CEO compensation is necessarily excessive relative to their global peers. According to the study, most of Australia's largest public companies pay their CEOs less than comparable global firms pay their CEOs. The researchers emphasise that this does not 'necessarily imply that Australian CEOs are "underpaid" or represent "good value"' but may suggest that CEOs elsewhere are 'overpaid' or alternately, that Australian firms are not competing in a global market for CEO talent and that 'local market considerations' can therefore depart from global benchmarks.
Key Points
- Australian CEOs in almost all industries receive lower compensation than their global peers.
- Only 24% of Australian firms are paying their CEOs at or above the levels of their global peers. Collectively, only 47 of the 200 firms in the sample exhibited CEO remuneration greater than that of benchmark firms.
- Healthcare: 'Without exception, the Australian CEOs appear to receive lower levels of compensation than the apparent global market rate'. Across the sample, remuneration of Australian CEOs is approximately one third that of foreign peers.
- Communications, TV and radio: Of six firms in the sample, only Nine Entertainment Co was found to provide compensation commensurate with the global industry. The five remaining firms all provide markedly lower levels of pay to their CEOs.
- Metals and Mining: There was more variation across the sample in this sector. Larger Australian mining firms (values over $1bn) were found to pay their CEOs relatively less than their global peers, while smaller miners (values below $1bn) tended to provide 'remuneration at a premium compared to global benchmarks'. For example, smaller firms, Saracen Minerals CEO Raleigh Finlayson, was paid $2.7 million against the $596,000 of peers, and Pilbara Minerals and CEO Ken Brinsden, paid $3.3 million against $879,000. At larger firms, BHP CEO Andrew Mackenzie of BHP received $5.9 million compared to $11.7 million for a peer group approximately one-third the size, though the study notes that some larger mining firms pay closer to the global benchmarks. Commenting on why some minters may provide remuneration in excess of global benchmarks, the researchers suggest that it may be because these firms need to attract managerial talent of the highest caliber from a smaller pool of candidates with 'specialised expertise'.
- No implication that Australian CEOs are '"underpaid" or represent "good value'": The researchers 'caution that our findings do not necessarily imply that Australian CEOs are "underpaid" or represent "good value" for their firms. Such a conclusion would require evidence on the value provided by these CEOs'. The researchers go on to suggest that one possible explanation is that 'CEOs elsewhere are overpaid' or alternately that 'many Australian firms are not competing in a global market for CEO talent and local market conditions can therefore depart from global benchmarks'.
About the study: The findings are based on an analysis of CEO compensation the 200 largest Australian firms, including almost all of the ASX 200 index. For each firm, a 'peer group' of five global firms (of similar size by market capitalisation and drawn from the same industry) was constructed, and the pay across the group compared. The findings were based on fiscal 2017 data. The writers note that the findings are consistent with a preliminary analysis of CEO compensation in four Australian firms Macquarie Group, Commonwealth Bank (CBA), CSL, and Woolworths Group.
[Sources: University of Melbourne Centre for Corporate Governance and Regulation, Ian D Gow, James P Kavourakis: Cult of excess? A global perspective on CEO compensation 11/04/2018; CEO Compensation in Australia A global Benchmarking study 21/08/2018; [registration required] The AFR 20/08/2018]
