Trending down

The Australian Council of Superannuation Investors (ACSI) has released its 19th annual report into CEO pay trends at ASX 200 companies . The report is based on FY19 pay data for 83 ASX100 CEOs and 73 ASX101-200 CEOs. The findings are based on 'realised pay' (ie the value of cash and equity actually received by ASX 200 CEOs) rather than reported pay.

The headline finding is that overall, CEO pay levels are trending downwards, which ACSI has welcomed as a sign of that most (if not all) companies are listening to investors on the issue.

ACSI CEO Louise Davidson said, 'It is pleasing to see, after many years of engagement and scrutiny from ACSI and its investor members, that the trend to restraint on how CEOs and their teams are rewarded continued last year'.

Some Interesting Findings

Overall, ASX 200 CEO pay is falling

• Overall, CEO median and average realised pay fell during FY19 in the ASX 200
• Across the ASX 100 released pay fell an average of 7.5%. Over time, median ASX100 CEO fixed pay has declined from $1.95m in FY 12 to $1.76m FY 19.
• The report comments that the overall average of $5.24m is the lowest recorded in the six years of realised-pay data for ASX 100 CEOs. It is also the first time average ASX 100 CEO pay has fallen below $5.5m.

Bucking the trend

• Having said this, the report found that not every company followed the overall downward trend. The report highlights a number of examples of CEOs 'receiving very high realised remuneration'. For example, six ASX100 CEOs received realised pay above $10m in FY19. The highest-paid CEO on a realised-pay basis in FY19, received $37.76m in realised pay, which ACSI comments is 'highest in the history of ACSI’s realised-pay data' (period FY 14 to FY 19).
• Several new companies, including seven outside the ASX 100 joined ACSI's list of the top 20 highest paid CEOs in FY 19. Three of the five highest paid CEOs in FY 19 head ASX 101-200 companies including the highest paid CEO on the list. ACSI attributes this to the rapid growth, and increased share price of the companies in question which increased the value of equity incentives awarded to CEOs.

Restraint on bonuses

• Bonuses continue to be awarded more often than not, but they're also smaller: ACSI welcomed the fact that companies appear to be exercising more restraint on incentives. ACSI found that the median bonus awarded as a proportion of maximum fell from 70% in FY 18 to 60% in FY 19. Previously, ACSI's 2019 report, suggested that there was opportunity to 'reexamine bonus culture' in light of the fact that 'at risk' pay, was in practice, 'not very risky'.
• Increased accountability: 25 ASX 200 CEOs eligible to receive a bonus received no bonus in FY 19. This is a substantial uptick on FY 18, where only seven CEOs had their bonuses zeroed out. Commenting on this, ACSI CEO Louise Davidson said that it demonstrates that 'more boards are using sensible discretion to rein in outcomes for senior executives'.

Decline in cash payments

• Across the ASX 100, median cash pay for ASX 100 CEOs was $2.69m, a fall of 6% on last year on average. According to the report, this is the lowest level since FY 16 and 8.7% lower than the record of $2.95mn in FY11. Average cash pay, at $2.74mn, was the lowest since FY 04.
• Across the ASX 101-200: Average and median cash pay also fell slightly (down 1.7% on last year on average). The report attributes the decline in part to the increased proportion of ASX101-200 CEOs receiving no cash bonus.
• The report comments that the decline in cash pay in FY19 for ASX200 CEOs 'should not obscure that CEOs of these entities continue to routinely receive large amounts of cash'. In FY19, 71.1% of the ASX100 sample received more than $2mn in cash pay (with 15.7% receiving more than $4m), while 71.2% of ASX101-200 CEOs received cash pay of more than $1m.

Less generous termination payments

Total termination payments fell to $18.35m across 14 CEOs, down from FY18’s $26.08m across 15 people.

Response to COVID-19 from an executive compensation perspective?

Commenting on the challenges facing boards from a remuneration standpoint this year, ACSI CEO Louise Davidson said that in most cases, boards appear well aware of the need to exercise restraint and respond to the current environment. Ms Davidson said,

…'companies will need to be mindful this year of how remuneration outcomes will be perceived externally, given the widespread impact of the pandemic on investors, staff, customers, governments and other key stakeholders. Remuneration trends in 2019 indicate many boards are well positioned to respond to these pressures. For others, however, there is more work to be done to make sure they are ‘reading the room’ on executive remuneration. As always, the measure of a good incentive system is the ability to go beyond the "check-the-box" approach to ensure pay outcomes reflect performance and the experience of investors in the company'.

Related News: Trends in executive remuneration is one of the themes regularly covered in MinterEllison's Governance News updates. The 19 August issue includes coverage of other reports into trends in executive pay in the UK and the US. Governance News can be accessed here.

[Sources: ACSI media release 06/08/2020; ACSI report: CEO Pay in ASX 200 Companies]