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Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Sean Alna.

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Speaker 1: Golden parachutes for Australian CEOs have shrunk to their lowest

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Speaker 1: levels in fifteen years. For the sharp drop and termination

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Speaker 1: payments for ASEX one hundred CEOs four fiscal year twenty

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Speaker 1: four compared to the previous year, CEO pay at Astralians

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Speaker 1: because companies have also flattened over the last decade, the

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Speaker 1: median realized pay is now four point one five million dollars.

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Speaker 1: But having said that, CEO pay at smaller companies is

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Speaker 1: rising ed John is Executive Manager Governance and Engagement at AXI.

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Speaker 1: The Australian Council of Superintenuation Investors AXI is a group

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Speaker 1: of SEO of funds as well as international asset owners

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Speaker 1: and institutional investors, who collectively have almost two trillion dollars

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Speaker 1: in funds under management. They focus on governments and sustainability

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Speaker 1: issues in listed companies and given their owners taken so

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Speaker 1: many of them, tend to be quite influential. Every year

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Speaker 1: ACXI releases its study of CEO pay in ASX two

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Speaker 1: hundred company. John, after that very long introduction, welcome back

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Speaker 1: to Fear and greed.

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Speaker 2: N I see you've Actean.

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Speaker 1: So the media is making a lot of the idea

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Speaker 1: with termination payments being lower and stuff like that, which

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Speaker 1: is fair enough. What I took from the survey, which

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Speaker 1: I thought was encouraging or not depending on your viewpoint,

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Speaker 1: I suppose, is that the median pay is now I

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Speaker 1: think it was fifty five times the average wage, whereas

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Speaker 1: ten years ago it was seventy seven times the average wage,

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Speaker 1: which suggests to me, whilst the numbers are very big,

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Speaker 1: the actual difference between the average wage rate and the

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Speaker 1: medium pay is smaller.

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Speaker 2: Yeah, I think your spot on Shawn, so over that

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Speaker 2: ten years you have seen that restraint or that flattening

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Speaker 2: of outcomes. So seventy one times ten years ago fifty

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Speaker 2: five times today, So to me, it just points to

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Speaker 2: the fact we're doing something right in Australia because you

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Speaker 2: look at countries like the UK or the US, there's

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Speaker 2: been a real CEO pay breakout over that same period,

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Speaker 2: and recent research actually out of the US shows in

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Speaker 2: multiples of something like three hundred and sixty times median

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Speaker 2: salary in large companies, so there has been that breakout.

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Speaker 2: I think we've avoided that here for a few reasons,

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Speaker 2: but particularly I think greater investor scrutiny as well as

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Speaker 2: a bit more diligence from ossie boards.

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Speaker 1: Is that why CEO termination payments have been reduced as well.

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Speaker 2: That has been a factor with termination pay following the

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Speaker 2: Global Financial Crisis. There was actually a change in the

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Speaker 2: law in two thousand and nine, So just after the

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Speaker 2: GFC you saw eighty million dollars paid out in golden

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Speaker 2: parachutes to top one hundred executives, which was a disaster

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Speaker 2: for shareholders who'd already been impacted, and it's sent a

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Speaker 2: really bad message because many of those leaving the companies

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Speaker 2: were in flames at the time. The law changed, which

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Speaker 2: affe actively gave shareholders a greater voice or an ability

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Speaker 2: to vote no on large golden parachutes and termination payments.

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Speaker 2: And since that time, investors are super funds as well

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Speaker 2: as you know Mum and Dad investors and others listening

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Speaker 2: to this show have actually voted no on those outsized

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Speaker 2: termination payments, and boards have really listened and I think

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Speaker 2: held executives more accountable. So that workover time has had

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Speaker 2: a huge impact and the numbers are down substantially.

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Speaker 1: Does actually have a view on whether the pay is

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Speaker 1: okay or not.

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Speaker 2: Generally, it's a good question. I think we do this

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Speaker 2: study to track the market trends. I think the okay

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Speaker 2: is in a way in the eye of the beholder.

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Speaker 2: But one thing we often come back to is value

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Speaker 2: for money. We can all think of CEOs and companies

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Speaker 2: that have shot the lights out and there may be

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Speaker 2: large pay packets there, but the experience of investors have

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Speaker 2: been very good over a long period. We can also

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Speaker 2: think of some of those companies and I'm not going

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Speaker 2: to name them or embarrass anyone today. We can think

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Speaker 2: of those outcomes where it feels like people are getting

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Speaker 2: a boness just to turn up to work, or getting

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Speaker 2: baronesses where the performance just simply isn't there. I think

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Speaker 2: that's the piece that really concerns investors, and that's you

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Speaker 2: know where we see large votes against remuneration reports or

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Speaker 2: a lot of media scrutiny in those sorts of outcomes.

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Speaker 1: And I am going to push after the break on it.

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Speaker 1: But just before we go to the break, you're talking

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Speaker 1: about realized pay here, and it's really important that we

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Speaker 1: define what that is.

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Speaker 2: Yes, yeah, great point, Sewan. So we talk about realized

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Speaker 2: pay disclosures from companies on executive pay are very complex,

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Speaker 2: so we do this extra work in the study every

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Speaker 2: year to show realize pay, which is effectively cash pay

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Speaker 2: plus the value of any share based bonuses that a

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Speaker 2: CEO has received in any one year. So it's much

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Speaker 2: more like the kind of take pay if you like that,

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Speaker 2: in that particular year for those executives.

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Speaker 1: Okay, same with me, Ed, We'll be back in a minute.

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Speaker 1: My guest this morning is Ed John from the Australian

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Speaker 1: Council of Superannuation Investors. Ahead of the break with you,

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Speaker 1: you defined what it realized pay was and it's kind

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Speaker 1: of think of it as take home pay. You also

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Speaker 1: not that you were mentioning names. There are some. I

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Speaker 1: mean one of the top ten CEO payouts is actually

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Speaker 1: from a company who is one of the one or

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Speaker 1: two worst performing stocks in the market the flip side,

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Speaker 1: rightly or wrongly, I think Matt Common from Commonwealth Bank.

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Speaker 1: Because company in the market's up forty or fifty percent

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Speaker 1: over the past twelve months, his pay I think he

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Speaker 1: comes in at eighteen or high teens or something like that.

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Speaker 1: Do badly do the best performing biggest companies have ceas

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Speaker 1: to earn most or not.

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Speaker 2: It's a good question that changes from year to year.

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Speaker 2: We often see a group of smaller companies may make

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Speaker 2: the list in a single year, and often that's on

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Speaker 2: the back of a small company. You know, they might

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Speaker 2: triple or double or triple in size over a performance period,

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Speaker 2: so their share price might go up four So that

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Speaker 2: puts some of those companies into the list. But the

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Speaker 2: big name so you know, the banks, the large miners,

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Speaker 2: Macquarie and others are often on that list. So it

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Speaker 2: is a good representation or a long term representation of

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Speaker 2: the large companies. But you can get some smaller names

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Speaker 2: in there, you know where particularly where share prices are

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Speaker 2: on the tear.

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Speaker 1: What about foreign CEOs where they're actually Australian companies but

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Speaker 1: their CEOs are paid in US dollars generally, Robert Thompson

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Speaker 1: at News Corp is a good example. Mick Farrell at

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Speaker 1: Resmeed Newmont Mining is a Canadian group listed here. James

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Speaker 1: Harty Industries is the other big one. Do they get

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Speaker 1: paid more generally?

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Speaker 2: Short answer is yes. I think there is a cultural

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Speaker 2: factor or there are specific market factors on CEO pay.

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Speaker 2: And as we talked about earlier. I think Australian investors

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Speaker 2: and Australian boards have paid closer attention to CEO pay

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Speaker 2: In places like the US there has been that breakout,

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Speaker 2: so we do see a number of US names on

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Speaker 2: the list. I think the concern can be that in

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Speaker 2: places like the US, they don't necessarily have performance hurdles

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Speaker 2: for some of the pay that happens there, which is

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Speaker 2: a major concern. When you see payments north of fifty

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Speaker 2: sixty even in the US market over one hundred million

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Speaker 2: in any one year, the question over performance and what

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Speaker 2: is delivered is a big one for investors.

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Speaker 1: What about bonus payments? So I think there were only

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Speaker 1: six of the top two hundred or sorry, six of

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Speaker 1: the one fifty that you looked at that didn't get

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Speaker 1: a bonus. If that's the case, it suggests that it's

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Speaker 1: kind of just normal part of your pack, you know,

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Speaker 1: you get the bonus. Well, that's right, Sean. I think

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Speaker 1: that challenge of you know, we don't want to see

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Speaker 1: in everyone wins the prize culture when it comes to bonuses,

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Speaker 1: so that average around about sixty percent of bonuses are

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Speaker 1: paid out across the market.

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Speaker 2: You know, dropped during the pandemic but has edged up,

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Speaker 2: So that is a concern. I think it's a focus

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Speaker 2: for investors, But really the question then comes down to

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Speaker 2: the individual company, for that specific person or that specific

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Speaker 2: group of executives, Again, did performance actually match what was paid?

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Speaker 2: So a major focus and a concern in some of

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Speaker 2: those companies where it feels like the bonus has just

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Speaker 2: become a given or an expectation.

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Speaker 1: What about smaller company paid they seem to be see

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Speaker 1: as the smaller companies are doing, their growth is higher

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Speaker 1: relative to the large companies.

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Speaker 2: Yeah, it's a great question, Sean, and we it's an

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Speaker 2: area we want to do further work because there are

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Speaker 2: a couple of names that have sort of shot up

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Speaker 2: the list this year. But whether that's a case of

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Speaker 2: just growth in that part of the market over the

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Speaker 2: past decade. Interesting to see is that because those companies

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Speaker 2: are getting bigger. Is it because you know, there's been

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Speaker 2: growth in some of those share prices, or is it

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Speaker 2: a case of keeping up with the joneses. I think

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Speaker 2: we're going to have to do some further work, and

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Speaker 2: it would be a concern if you know there is

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Speaker 2: an ongoing uplift or breakout in that in that part

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Speaker 2: of the market and.

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Speaker 1: You might not actually want to comment on specifics. But

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Speaker 1: Lavisa's Victor Herrero came in at number two. He was

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Speaker 1: only behind Robert Thompson from news Court, which is the

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Speaker 1: US based executive. Is that a specific without saying that's

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Speaker 1: good or bad? Right? Is that a stock specific issue

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Speaker 1: there or is it just the fact that the guy

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Speaker 1: gets earns a lot of money? Well?

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Speaker 2: I think really each outcome is a stock specific big issue.

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Speaker 2: So we include numbers in the research around performance, and

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Speaker 2: particularly so of TSR performance over five years, so I

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Speaker 2: think that plays a role. But you really then to

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Speaker 2: go further, you need to break down what were the

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Speaker 2: annual or the longer term incentives that have been paid

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Speaker 2: out to get you there? So really a company specific issue.

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Speaker 1: Ever, the diplomat, Ever, the diplomat well done. Just finally,

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Speaker 1: I mean, how much the super funds take this research

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Speaker 1: and provide it and make commentary on it to the

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Speaker 1: big companies because I think this is the best research

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Speaker 1: in terms of CEO pay and I'm sure it's something

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Speaker 1: get all large investors and small investors for that matter,

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Speaker 1: care about. Now.

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Speaker 2: It's certainly something that we've found it valuable just to

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Speaker 2: see what those trends are. And also we know boards

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Speaker 2: pay a lot of attention to it as well. Again,

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Speaker 2: I think that diligent work of investors large and small,

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Speaker 2: of Australian boards to actually track these things and make

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Speaker 2: sure pay actually reflects performance is a key takeaway and

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Speaker 2: some of the results this year show that all of

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Speaker 2: that work, you know, the votes against poor practices, the

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Speaker 2: engagement that Australian boards do with investors, a scrutiny from

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Speaker 2: media and others, has actually paid off over time and

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Speaker 2: seeing termination payments drop, seeing the sort of average hold flat.

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Speaker 2: Sure people can make good money, but that expectation that

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Speaker 2: it's actually linked to delivering for investors is something that

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Speaker 2: you know, we're getting right to a certain extent in

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Speaker 2: the Australian market, but we need to be really careful

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Speaker 2: that we keep that culture.

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Speaker 1: Thank you for talking to Fear and Greed.

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Speaker 2: Thanks Sean.

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Speaker 1: That was John, Executive Manager Governance and Engagement at actually

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Speaker 1: the Austraining Councilor of Superannuation Investors. This is the Fear

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Speaker 1: and Greed business Interview. Join us every morning for the

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Speaker 1: full episode of Fear and Greed, a business news you

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Speaker 1: can use on Sean ail Mon enjoy your day. Would

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Speaker 1: you