1 00:00:05,850 --> 00:00:08,520 Sean Aylmer: Welcome to the Fear & Greed Business Interview. I'm Sean Aylmer. 2 00:00:08,580 --> 00:00:12,450 Sean Aylmer: CEO pay levels have decreased in many of Australia's listed 3 00:00:12,450 --> 00:00:15,569 Sean Aylmer: companies, but bonus payments have become the norm according to 4 00:00:15,570 --> 00:00:19,770 Sean Aylmer: new research from the Australian Council of Superannuation Investors. The 5 00:00:19,770 --> 00:00:22,110 Sean Aylmer: study also reveals that over the past year, a CEO 6 00:00:22,110 --> 00:00:24,900 Sean Aylmer: is more likely to lose their job than their bonus. 7 00:00:25,140 --> 00:00:29,070 Sean Aylmer: Realized pay for ASX 100 CEOs fell marginally in the last 8 00:00:29,070 --> 00:00:31,859 Sean Aylmer: fiscal year with a median dropping a touch to $ 3. 9 00:00:31,860 --> 00:00:35,669 Sean Aylmer: 93 million. That's the lowest level in 10 years according 10 00:00:35,670 --> 00:00:39,089 Sean Aylmer: to the ACSI study. But CEOs are benefiting from bonuses, 11 00:00:39,120 --> 00:00:43,229 Sean Aylmer: in the ASX 100, CEOs received a median bonus of about 12 00:00:43,229 --> 00:00:47,280 Sean Aylmer: two thirds of the maximum potential. Only two CEOs didn't 13 00:00:47,340 --> 00:00:50,519 Sean Aylmer: take home a bonus last financial year. Ed John is 14 00:00:50,519 --> 00:00:54,359 Sean Aylmer: the executive manager stewardship at ACSI, the Australian Council of 15 00:00:54,359 --> 00:00:56,910 Sean Aylmer: Superannuation Investors. Ed, welcome back to Fear Fear & Greed. 16 00:00:57,240 --> 00:00:58,080 Ed John: Nice to be back. 17 00:00:58,410 --> 00:01:00,870 Sean Aylmer: What are your key takeouts from this year's survey? 18 00:01:01,740 --> 00:01:04,349 Ed John: Well, I think you touched on the introduction, really the 19 00:01:04,349 --> 00:01:07,620 Ed John: fact that pay levels have dipped in terms of the 20 00:01:07,620 --> 00:01:11,459 Ed John: realized pay for top 100 CEOs. But there is that 21 00:01:11,459 --> 00:01:15,929 Ed John: emerging concern around bonuses and bonus culture because a high 22 00:01:15,930 --> 00:01:19,890 Ed John: level of bonuses are still being awarded. The standard outcome 23 00:01:19,890 --> 00:01:24,569 Ed John: is about 66% of maximum for a top 100 CEO. So 24 00:01:24,569 --> 00:01:27,780 Ed John: there is concern that there's a culture emerging where it's 25 00:01:27,780 --> 00:01:31,890 Ed John: almost becoming an everyone wins a prize conversation, rather than the 26 00:01:31,890 --> 00:01:35,819 Ed John: expectation I think for many investors that bonuses are really 27 00:01:35,819 --> 00:01:38,580 Ed John: about excellent performance, not just turning up. 28 00:01:39,270 --> 00:01:42,150 Sean Aylmer: So I'll jump into bonuses in a moment. Just a 29 00:01:42,150 --> 00:01:45,750 Sean Aylmer: couple of things. Realized, you measure realized pay. Just explain 30 00:01:45,750 --> 00:01:47,098 Sean Aylmer: what realized pay is. 31 00:01:47,430 --> 00:01:49,560 Ed John: Yeah, realized pay is very important because we look at 32 00:01:49,560 --> 00:01:52,830 Ed John: both the cash elements of CEO pay as well as 33 00:01:52,830 --> 00:01:56,099 Ed John: the value of shares that have been awarded to CEOs. 34 00:01:56,099 --> 00:02:00,330 Ed John: So it's more like what they're actually receiving. The challenge 35 00:02:00,389 --> 00:02:03,090 Ed John: in pay reporting, which you've probably picked up when you 36 00:02:03,480 --> 00:02:07,230 Ed John: open a company's annual report, it's very complex. There's a 37 00:02:07,230 --> 00:02:09,388 Ed John: lot of noise in there. There's a lot of estimates 38 00:02:09,389 --> 00:02:13,380 Ed John: about the future in there. So in our study, realized 39 00:02:13,380 --> 00:02:17,340 Ed John: pay looks at what's actually received, , cash and shares and trying to 40 00:02:17,340 --> 00:02:18,480 Ed John: cut through that complexity. 41 00:02:19,080 --> 00:02:23,549 Sean Aylmer: So does that mean someone who's issued shares as a 42 00:02:23,910 --> 00:02:26,100 Sean Aylmer: final payment, that's captured in this as well? 43 00:02:26,610 --> 00:02:31,139 Ed John: That's right. When those received by the CEO. So if 44 00:02:31,139 --> 00:02:33,690 Ed John: there are still performance conditions attached to those, we don't 45 00:02:34,110 --> 00:02:37,168 Ed John: count it. But when they're received, when they're effectively available 46 00:02:37,169 --> 00:02:38,610 Ed John: to the CEOs, when we count them. 47 00:02:39,000 --> 00:02:42,209 Sean Aylmer: Yes. Okay. So let's talk... Again, we will get to 48 00:02:42,209 --> 00:02:45,450 Sean Aylmer: bonus. CEO pay levels are down or have leveled, I 49 00:02:45,450 --> 00:02:47,430 Sean Aylmer: mean, let's say they're flat. Why is that? 50 00:02:48,120 --> 00:02:51,599 Ed John: Well, I think the greatest scrutiny from investors, I think 51 00:02:51,599 --> 00:02:54,840 Ed John: greater diligence from Australian boards has played a big factor 52 00:02:54,840 --> 00:02:59,010 Ed John: in recent years. We've also seen a pretty significant level 53 00:02:59,010 --> 00:03:05,070 Ed John: of shareholder opposition. So last year in the ASX 300, there were 41 first 54 00:03:05,070 --> 00:03:08,580 Ed John: strike votes from shareholders. So effectively a large number of 55 00:03:08,580 --> 00:03:12,389 Ed John: shareholders voting no on CEO pay. So we think there 56 00:03:12,389 --> 00:03:15,389 Ed John: is a cumulative impact of that sort of focus and 57 00:03:15,389 --> 00:03:17,820 Ed John: that sort of work on bonus outcomes. 58 00:03:18,480 --> 00:03:21,239 Sean Aylmer: That's a good thing, isn't it? I mean, shareholders should 59 00:03:21,389 --> 00:03:23,489 Sean Aylmer: be more vocal. I mean, they should have their say 60 00:03:24,300 --> 00:03:26,910 Sean Aylmer: about CEO pay and that type of thing. It just 61 00:03:26,910 --> 00:03:29,730 Sean Aylmer: seems that the activist shareholder seems to be having a 62 00:03:29,730 --> 00:03:32,280 Sean Aylmer: moment in the sun, at least in Australia. 63 00:03:32,940 --> 00:03:35,850 Ed John: Well, I think we're actually moving from the activist shareholder 64 00:03:35,850 --> 00:03:40,500 Ed John: to the active shareholder in terms of when we see this 65 00:03:40,500 --> 00:03:45,899 Ed John: with small retail investors or the Australian Shareholders Association, we see 66 00:03:45,900 --> 00:03:48,990 Ed John: it from asset managers and see it from superannuation funds. 67 00:03:49,410 --> 00:03:54,480 Ed John: That being active, engaging with AGMs and obviously voting shares 68 00:03:54,480 --> 00:03:58,080 Ed John: has become a really important part of the landscape. And 69 00:03:58,080 --> 00:04:01,050 Ed John: I think it's one reason that the numbers in the 70 00:04:01,050 --> 00:04:04,889 Ed John: Australian market around CEO pay actually differ quite significantly from 71 00:04:04,889 --> 00:04:07,920 Ed John: other markets where it feels like things have really spun 72 00:04:07,920 --> 00:04:08,730 Ed John: out of control. 73 00:04:09,179 --> 00:04:12,420 Sean Aylmer: Okay. And your members, ACSI's members, it's kind of the 74 00:04:12,420 --> 00:04:15,510 Sean Aylmer: big end of town. I suppose for smaller shareholders like 75 00:04:15,510 --> 00:04:18,570 Sean Aylmer: me, in a sense, I rely on the big end 76 00:04:18,570 --> 00:04:21,599 Sean Aylmer: of town to make some of these judgements. If I 77 00:04:21,599 --> 00:04:23,878 Sean Aylmer: look at an annual report, it's actually hard to understand 78 00:04:23,880 --> 00:04:27,359 Sean Aylmer: what's going on, number one. But then if be it a 79 00:04:27,360 --> 00:04:30,330 Sean Aylmer: proxy group or a large shareholder actually says, " Hold on, 80 00:04:30,330 --> 00:04:32,640 Sean Aylmer: I'm worried about that," then me as a retail shareholder, 81 00:04:32,940 --> 00:04:35,190 Sean Aylmer: I tend to follow the leader a bit. So to me, 82 00:04:35,190 --> 00:04:37,770 Sean Aylmer: there seems to be a bit of a responsibility that 83 00:04:37,770 --> 00:04:41,850 Sean Aylmer: your members have to be active in what they're doing. 84 00:04:42,059 --> 00:04:45,988 Ed John: That's true. But I'd also say for individual shareholders, there's 85 00:04:45,990 --> 00:04:49,020 Ed John: a lot of, again, research out there. There's just that 86 00:04:49,020 --> 00:04:52,320 Ed John: broad experience of how has this company performed for me, 87 00:04:52,620 --> 00:04:55,529 Ed John: either in my individual portfolio for an institution, how it's 88 00:04:55,529 --> 00:04:59,099 Ed John: performed in the broader portfolio. And I think it's a 89 00:04:59,099 --> 00:05:03,900 Ed John: good question. Do bonus outcomes actually reflect that performance? Has 90 00:05:03,900 --> 00:05:07,529 Ed John: this management team and this company delivered for me over 91 00:05:07,529 --> 00:05:11,250 Ed John: a one three or five year horizon? That's actually a 92 00:05:11,250 --> 00:05:15,058 Ed John: pretty good window in. If you combine that perspective and 93 00:05:15,059 --> 00:05:17,699 Ed John: obviously look at what the outcomes are, it's not a 94 00:05:17,700 --> 00:05:20,190 Ed John: bad starting point. And you certainly don't have to be in 95 00:05:20,190 --> 00:05:22,199 Ed John: a remuneration boffin. 96 00:05:22,740 --> 00:05:24,930 Sean Aylmer: Stay with me, Ed. We'll be back in a minute. 97 00:05:31,770 --> 00:05:35,010 Sean Aylmer: I am speaking to Ed John, manager stewardship at the 98 00:05:35,010 --> 00:05:40,438 Sean Aylmer: Australian Council of Superannuation Investors. Let's talk about bonuses then. In 99 00:05:40,889 --> 00:05:44,700 Sean Aylmer: the top 100 companies, only two CEOs didn't get a 100 00:05:44,700 --> 00:05:52,169 Sean Aylmer: bonus. The median bonus, 66.3% of the maximum potential. Well, 101 00:05:52,860 --> 00:05:56,130 Sean Aylmer: should bonuses be paid for company CEOs who underperform? If 102 00:05:56,130 --> 00:05:59,820 Sean Aylmer: the market's up 8% or 9% last year, should anyone 103 00:05:59,820 --> 00:06:03,570 Sean Aylmer: whose total shareholder return is less than that, should they 104 00:06:03,570 --> 00:06:04,469 Sean Aylmer: be getting bonuses? 105 00:06:05,040 --> 00:06:09,900 Ed John: It's hard to comment without knowing the individual company circumstances. 106 00:06:09,900 --> 00:06:13,678 Ed John: But I think generally speaking, you touch on something so important 107 00:06:13,678 --> 00:06:18,900 Ed John: that really it's about out- performance or strong performance. Some 108 00:06:18,900 --> 00:06:22,529 Ed John: companies might be in a challenged industry or going through 109 00:06:22,529 --> 00:06:26,040 Ed John: a transformation, so it could be quite context specific. But 110 00:06:26,040 --> 00:06:28,920 Ed John: in general, I think most approaches would be that it's 111 00:06:28,920 --> 00:06:34,169 Ed John: about performing above and beyond, not just delivering a basic 112 00:06:34,170 --> 00:06:34,620 Ed John: outcome 113 00:06:35,309 --> 00:06:37,500 Sean Aylmer: And should that be judged? I know in your release 114 00:06:37,500 --> 00:06:40,049 Sean Aylmer: you talk about five year total shareholder return, and Mick 115 00:06:40,050 --> 00:06:43,170 Sean Aylmer: Farrell, the head of ResMed, his realized pay is massive, 116 00:06:43,170 --> 00:06:46,259 Sean Aylmer: it's 48 million. But over five years, his total shareholder 117 00:06:46,260 --> 00:06:50,609 Sean Aylmer: return per annum is 19%, which is I think by 118 00:06:50,610 --> 00:06:54,089 Sean Aylmer: any measure, a very strong outcome. It's hard to compare 119 00:06:54,089 --> 00:06:56,490 Sean Aylmer: apples and apples here because we're talking about one year's 120 00:06:56,490 --> 00:06:59,400 Sean Aylmer: pay in a five- year total shareholder return. But is that 121 00:06:59,670 --> 00:07:00,780 Sean Aylmer: how we should be measuring it? 122 00:07:01,320 --> 00:07:04,020 Ed John: We just include that as a comparison point. So again, 123 00:07:04,020 --> 00:07:07,380 Ed John: comes down to the individual company. I guess the investor 124 00:07:07,380 --> 00:07:09,599 Ed John: lens is may be different to if you ask a 125 00:07:09,599 --> 00:07:12,270 Ed John: person in the street or in any conversation, people have 126 00:07:12,270 --> 00:07:15,060 Ed John: different views about how much is too much in quantum. 127 00:07:15,390 --> 00:07:18,660 Ed John: It's a bit like how much footy players, or film 128 00:07:18,660 --> 00:07:22,139 Ed John: stars, or others are paid. You'll get various views on 129 00:07:22,139 --> 00:07:25,799 Ed John: it. We include the performance numbers just as a test 130 00:07:25,799 --> 00:07:29,369 Ed John: to see how to do those numbers actually compare with 131 00:07:29,609 --> 00:07:34,380 Ed John: the shareholder experience. And we have had situations over time 132 00:07:34,380 --> 00:07:36,750 Ed John: where you have some large numbers, but they're actually attached 133 00:07:36,750 --> 00:07:41,160 Ed John: to quite amazing performance from companies. So if you have 134 00:07:42,179 --> 00:07:47,909 Ed John: 50%, 100%, 150% total return over a period, no surprise that those share- 135 00:07:47,910 --> 00:07:51,960 Ed John: based payments actually come out with high numbers. It's probably 136 00:07:51,960 --> 00:07:55,380 Ed John: the situations where the numbers are flat or negative on 137 00:07:55,380 --> 00:07:58,710 Ed John: the performance side, but very large in the pay column that 138 00:07:58,860 --> 00:08:01,230 Ed John: really draws the investor focus. 139 00:08:02,250 --> 00:08:04,830 Sean Aylmer: So in another example, and I don't particularly want to 140 00:08:04,830 --> 00:08:08,280 Sean Aylmer: pick on the company itself, but News Corp, its boss, 141 00:08:08,280 --> 00:08:12,060 Sean Aylmer: Robert Thomson, number two on the list, its return over 142 00:08:12,060 --> 00:08:15,359 Sean Aylmer: five years, about 8%. But News Corp operates in a 143 00:08:15,420 --> 00:08:18,690 Sean Aylmer: very different sector to ResMed, who's Mick Farrell, the healthcare 144 00:08:18,690 --> 00:08:21,599 Sean Aylmer: sector to the number three is Goodman Group, which is 145 00:08:21,599 --> 00:08:25,560 Sean Aylmer: a booming sector for the industrial operators. It's a bit 146 00:08:25,560 --> 00:08:27,300 Sean Aylmer: tricky then to say, well, (inaudible) Robert Thomson from 147 00:08:27,300 --> 00:08:30,390 Sean Aylmer: News Corp, you shouldn't earn that much money. The fact 148 00:08:30,390 --> 00:08:32,579 Sean Aylmer: that he's kept it going in such a tough industry, 149 00:08:32,580 --> 00:08:33,630 Sean Aylmer: maybe he does deserve it. 150 00:08:33,840 --> 00:08:36,390 Ed John: Exactly right. And I think really going back to that 151 00:08:36,840 --> 00:08:39,870 Ed John: core focus where it's about the individual company and its 152 00:08:39,870 --> 00:08:43,200 Ed John: context. So it's hard to generalize or pull one CEO 153 00:08:43,200 --> 00:08:48,510 Ed John: out without digging into that context. Interestingly, the top two 154 00:08:48,510 --> 00:08:52,110 Ed John: CEOs are US- based. So I think over time, we 155 00:08:52,110 --> 00:08:54,988 Ed John: have seen that difference in pay culture. And as I 156 00:08:55,320 --> 00:08:58,949 Ed John: earlier, I think in the Australian market, probably the greater scrutiny, 157 00:08:59,639 --> 00:09:03,449 Ed John: the more diligent work of boards has seen CEO pay 158 00:09:03,450 --> 00:09:07,050 Ed John: probably more aligned to shareholder experience. In places like the 159 00:09:07,050 --> 00:09:11,728 Ed John: US for instance, we've seen some recent research that shows that 160 00:09:12,840 --> 00:09:16,708 Ed John: average CEO pay is about 200 times the average worker 161 00:09:16,708 --> 00:09:20,220 Ed John: salary in many companies. And you might have seen the 162 00:09:20,220 --> 00:09:22,350 Ed John: recent headline with Elon Musk and a CEO pay outcome 163 00:09:24,840 --> 00:09:28,139 Ed John: in the billions. Billions with a B. Again, a very 164 00:09:28,139 --> 00:09:30,090 Ed John: different experience in the US market. 165 00:09:30,719 --> 00:09:32,608 Sean Aylmer: I want to come back to whether everyone deserves a 166 00:09:32,610 --> 00:09:35,000 Sean Aylmer: bonus, and I think that's a bottom line for many 167 00:09:35,039 --> 00:09:39,000 Sean Aylmer: of (inaudible) shareholders. If my CEO hasn't performed well, 168 00:09:39,030 --> 00:09:41,850 Sean Aylmer: particularly if my CEO has left a company for some 169 00:09:41,850 --> 00:09:44,820 Sean Aylmer: sort of reason, I mean in your view, in ACSI's 170 00:09:44,820 --> 00:09:47,399 Sean Aylmer: view, do they deserve a bonus? Shouldn't we not be 171 00:09:47,400 --> 00:09:51,420 Sean Aylmer: giving 98 out a 100 top ASX companies shouldn't be more 172 00:09:51,420 --> 00:09:52,620 Sean Aylmer: who aren't getting bonuses? 173 00:09:52,949 --> 00:09:54,630 Ed John: Yeah, I think we want to see it become more 174 00:09:54,630 --> 00:09:57,270 Ed John: at risk. I mean, it's called at risk in annual 175 00:09:57,270 --> 00:09:59,520 Ed John: reports, but there's a question mark in some of these 176 00:09:59,520 --> 00:10:01,860 Ed John: companies as to whether or not it is at risk. 177 00:10:02,160 --> 00:10:04,740 Ed John: So we would like to see that number shift over 178 00:10:04,740 --> 00:10:08,218 Ed John: time. And in some way, it's having a culture where, 179 00:10:08,250 --> 00:10:11,760 Ed John: which effectively says it's actually okay for a CEO to get 180 00:10:11,760 --> 00:10:15,000 Ed John: a zero outcome or a low outcome. That shouldn't be 181 00:10:15,000 --> 00:10:21,900 Ed John: seen as a failure. We should see that difference in outcomes over time. And that statistic about you're 182 00:10:21,900 --> 00:10:25,349 Ed John: more likely to be fired than to receive zero on 183 00:10:25,349 --> 00:10:29,789 Ed John: your short- term incentive is a concern. In some ways, it 184 00:10:29,789 --> 00:10:32,520 Ed John: would be better to see zeros or lower numbers more 185 00:10:32,520 --> 00:10:35,550 Ed John: often, but perhaps better retention of people. 186 00:10:36,179 --> 00:10:38,459 Sean Aylmer: Fair enough. Ed, thank you for talking to Fear & Greed. 187 00:10:38,820 --> 00:10:39,269 Ed John: Thanks, Sean. 188 00:10:39,840 --> 00:10:43,049 Sean Aylmer: That was Ed John, executive manager stewardship at ACSI. This 189 00:10:43,049 --> 00:10:45,630 Sean Aylmer: is the Fear & Greed Business Interview. Remember, this is general 190 00:10:45,630 --> 00:10:48,088 Sean Aylmer: information only. You should always seek professional advice before making 191 00:10:48,090 --> 00:10:51,120 Sean Aylmer: investment decisions. Join us every morning for the full episode 192 00:10:51,120 --> 00:10:53,400 Sean Aylmer: of Fear & Greed, the business news for people who make their 193 00:10:53,400 --> 00:10:56,190 Sean Aylmer: own decisions. I'm Sean Aylmer. Enjoy your day.