1 00:00:03,960 --> 00:00:06,930 Sean Aylmer: Welcome to the Fear and Greed business interview. I'm Sean Aylmer. 2 00:00:06,990 --> 00:00:11,639 Sean Aylmer: The average pay for ASX100 CEOs fell last year to 3 00:00:11,639 --> 00:00:15,239 Sean Aylmer: its lowest level recorded in almost a decade, but it's 4 00:00:15,240 --> 00:00:19,739 Sean Aylmer: still 55 times average adult earnings. And bonuses have fallen too, 5 00:00:19,739 --> 00:00:23,070 Sean Aylmer: coming down from the previous years' record highs. So is 6 00:00:23,070 --> 00:00:26,849 Sean Aylmer: this a reflection of economic and business conditions, closer scrutiny 7 00:00:26,849 --> 00:00:30,089 Sean Aylmer: by investors and boards, or perhaps a bit of both 8 00:00:30,090 --> 00:00:33,000 Sean Aylmer: and a little bit more? Ed John is the Executive Manager, 9 00:00:33,000 --> 00:00:39,839 Sean Aylmer: Stewardship at the Australian Council of Superannuation Investors, ACSI. The 10 00:00:39,840 --> 00:00:44,429 Sean Aylmer: report is CEO Pay in ASX200 Companies. It's ACSI's longest 11 00:00:44,429 --> 00:00:47,519 Sean Aylmer: running report. ACSI itself is a group of 26 super 12 00:00:47,519 --> 00:00:50,429 Sean Aylmer: funds who manage over a trillion dollars in assets. On average, 13 00:00:50,429 --> 00:00:54,510 Sean Aylmer: they own 10% of every company on the ASX200. So Ed, 14 00:00:54,510 --> 00:00:56,730 Sean Aylmer: I'm sure you know what you're talking about as a result. 15 00:00:56,730 --> 00:00:57,630 Sean Aylmer: Welcome to Fear and Greed. 16 00:00:58,110 --> 00:01:00,000 Ed John: Thanks, Sean. Nice to be here. And I hope we've 17 00:01:00,000 --> 00:01:02,580 Ed John: developed some knowledge that we can share with you today. 18 00:01:03,059 --> 00:01:05,520 Sean Aylmer: So take me through some of the key statistics. Just 19 00:01:05,520 --> 00:01:08,880 Sean Aylmer: how much has the average realised CEO pay, maybe you 20 00:01:08,880 --> 00:01:13,050 Sean Aylmer: can explain what you mean by realised CEO pay, fallen 21 00:01:13,199 --> 00:01:14,910 Sean Aylmer: since those pandemic highs? 22 00:01:15,840 --> 00:01:18,870 Ed John: Yeah, absolutely. I guess, to begin on that question of realised, 23 00:01:19,440 --> 00:01:22,469 Ed John: as part of the study, we actually go beyond the 24 00:01:22,469 --> 00:01:26,880 Ed John: numbers in annual reports to look at realised pay, which 25 00:01:26,880 --> 00:01:31,980 Ed John: is effectively not only the fixed remuneration or cash-based remuneration 26 00:01:31,980 --> 00:01:37,500 Ed John: received by executives, but the value of shares that they receive. So it's 27 00:01:37,500 --> 00:01:40,139 Ed John: a little bit different to what appears in the statutory 28 00:01:40,139 --> 00:01:43,229 Ed John: tables or in the annual reports of companies, but we 29 00:01:43,230 --> 00:01:46,469 Ed John: see it as more accurate or closer to, again, what 30 00:01:46,469 --> 00:01:49,079 Ed John: CEOs are earning in any one year. 31 00:01:50,399 --> 00:01:53,340 Sean Aylmer: I'm just going to ask a question. So is this, options, 32 00:01:53,340 --> 00:01:56,370 Sean Aylmer: for example, if they haven't vested, is that included or not? 33 00:01:56,790 --> 00:01:58,200 Ed John: No. Only when they vest. 34 00:01:58,290 --> 00:02:00,599 Sean Aylmer: Okay. Only when they vest, and then it's actual share 35 00:02:00,599 --> 00:02:01,919 Sean Aylmer: entitlements and things like that? 36 00:02:02,280 --> 00:02:04,529 Ed John: That's right. So it starts to paint a much more 37 00:02:04,529 --> 00:02:08,580 Ed John: accurate picture of the sort of value delivered. Again, we 38 00:02:08,580 --> 00:02:12,869 Ed John: don't follow it through to the individual's tax circumstances or 39 00:02:13,530 --> 00:02:16,679 Ed John: when they exercise options, but as soon as they sort 40 00:02:16,679 --> 00:02:20,669 Ed John: of vest, they're included, which makes it much more accurate. 41 00:02:21,179 --> 00:02:23,069 Sean Aylmer: Yeah. Okay. So what's happened? 42 00:02:23,609 --> 00:02:28,260 Ed John: So I guess, the key thing is the average pay 43 00:02:28,260 --> 00:02:32,668 Ed John: for an ASX100 CEO is still around $5 million per person. 44 00:02:33,150 --> 00:02:37,919 Ed John: There's obviously a wide variation within the ASX100, again, as 45 00:02:37,919 --> 00:02:41,969 Ed John: compared to the average adult earnings, that's about 55 times. 46 00:02:42,329 --> 00:02:47,880 Ed John: But interestingly, compared to the prior year, that's fallen quite dramatically. 47 00:02:47,880 --> 00:02:53,100 Ed John: So post-pandemic, we saw this bonus catch-up up the prior year, 48 00:02:53,790 --> 00:02:57,599 Ed John: and so average pay was sitting at about 98 times 49 00:02:57,599 --> 00:03:00,419 Ed John: average adult earnings in the prior year. So it's gone 50 00:03:00,419 --> 00:03:05,130 Ed John: from 98 to 55 over that period. So pretty dramatic drop. 51 00:03:05,639 --> 00:03:08,759 Sean Aylmer: Yeah. Why? Is that about share prices or is it 52 00:03:08,760 --> 00:03:09,990 Sean Aylmer: about remuneration? 53 00:03:10,740 --> 00:03:13,679 Ed John: I think it's a mixture of both. So one thing 54 00:03:13,679 --> 00:03:15,869 Ed John: we did see, so in 2020 at the beginning of 55 00:03:15,870 --> 00:03:19,379 Ed John: the pandemic, we know about that sort of market volatility 56 00:03:19,379 --> 00:03:23,040 Ed John: and that major drop in equity markets. There's a huge 57 00:03:23,040 --> 00:03:26,280 Ed John: focus from investors then to say, "Hey, there's been a 58 00:03:26,280 --> 00:03:31,919 Ed John: huge impact on superannuation accounts, on people's shareholdings," and boards 59 00:03:31,919 --> 00:03:34,288 Ed John: really read the room. And so they zeroed out a 60 00:03:34,288 --> 00:03:36,689 Ed John: lot of bonuses at the beginning of the pandemic in 61 00:03:36,690 --> 00:03:40,530 Ed John: recognition of those conditions. But then in the following year, which 62 00:03:40,530 --> 00:03:44,789 Ed John: is financial year '21, there was effectively a catch- up 63 00:03:44,790 --> 00:03:48,420 Ed John: in bonuses. So trading conditions jumped, a lot of share 64 00:03:48,420 --> 00:03:51,780 Ed John: prices jumped over that year. So bonuses sort of came 65 00:03:51,780 --> 00:03:55,110 Ed John: back with a vengeance. And really the financial year we're 66 00:03:55,110 --> 00:03:58,680 Ed John: looking at in this report is that year after. So 67 00:03:58,830 --> 00:04:01,140 Ed John: flat at the beginning of the pandemic, the kind of 68 00:04:01,140 --> 00:04:04,979 Ed John: bonus catch-up. And this is a shift back down after 69 00:04:04,980 --> 00:04:05,550 Ed John: that high. 70 00:04:06,450 --> 00:04:09,150 Sean Aylmer: I think the report says that Alan Joyce from Qantas 71 00:04:09,150 --> 00:04:11,790 Sean Aylmer: actually, he was the only one of the top 100 72 00:04:12,090 --> 00:04:14,160 Sean Aylmer: that didn't receive a bonus. Is that right? 73 00:04:14,700 --> 00:04:17,640 Ed John: That's right. There's a slight asterisk on that in terms 74 00:04:17,640 --> 00:04:21,300 Ed John: of there is a deferred equity or a different type 75 00:04:21,300 --> 00:04:25,709 Ed John: of equity arrangement, which may vest in the current financial year. 76 00:04:25,950 --> 00:04:28,318 Ed John: But yeah, he's the only one that sort of didn't 77 00:04:28,320 --> 00:04:30,090 Ed John: receive an STI (Short Term Incentive) during the year. 78 00:04:30,091 --> 00:04:35,250 Sean Aylmer: Okay. So for the other 99, are bonuses back at about 79 00:04:35,880 --> 00:04:37,020 Sean Aylmer: normal levels then? 80 00:04:38,309 --> 00:04:40,740 Ed John: They're a little bit lower. They're a little bit lower. Again, 81 00:04:40,980 --> 00:04:43,949 Ed John: hard to comment on the averages because in some companies 82 00:04:43,950 --> 00:04:48,270 Ed John: it's very high. In some companies, almost like a hundred 83 00:04:48,270 --> 00:04:52,469 Ed John: per cent of target becomes the expectation, whereas others, it's probably a 84 00:04:52,470 --> 00:04:57,360 Ed John: tougher scale. So they're generally lower than the longer term trend, 85 00:04:57,779 --> 00:05:03,659 Ed John: but still around about 70% of maximum is your median outcome. 86 00:05:04,230 --> 00:05:06,089 Sean Aylmer: Stay with me, Ed. We'll be back in a moment. 87 00:05:12,269 --> 00:05:19,859 Sean Aylmer: I am speaking to Ed John, Executive Manager, Stewardship at the Australian Council of Superannuation Investors. Okay. Now, there 88 00:05:19,860 --> 00:05:21,238 Sean Aylmer: are a number of companies on the list that are 89 00:05:21,240 --> 00:05:24,539 Sean Aylmer: foreign companies still listed here. ResMed is an example, News 90 00:05:24,539 --> 00:05:30,029 Sean Aylmer: Corp is another. Do the pay of those foreign CEOs 91 00:05:30,600 --> 00:05:34,739 Sean Aylmer: differ drastically from, I'm asking this question and I know 92 00:05:34,740 --> 00:05:36,719 Sean Aylmer: how much the ResMed guy makes, so I think I 93 00:05:36,719 --> 00:05:40,290 Sean Aylmer: know the answer, but does it differ drastically from local pay? 94 00:05:40,770 --> 00:05:44,010 Ed John: Yeah, it definitely does, Sean. So in some ways when 95 00:05:44,010 --> 00:05:47,729 Ed John: you look at the numbers, you think Australian investors large 96 00:05:47,730 --> 00:05:52,170 Ed John: and small and Australian boards have actually probably applied more 97 00:05:52,469 --> 00:05:56,250 Ed John: scrutiny to CEO pay over time. And there is a 98 00:05:56,250 --> 00:06:00,690 Ed John: cultural element around CEO pay. So three of the highest 99 00:06:00,750 --> 00:06:04,440 Ed John: paid CEOs in this year came from those US companies. And you 100 00:06:04,440 --> 00:06:10,200 Ed John: often see, say, quantums of $30 or $40 or $50 million incentives come through 101 00:06:10,200 --> 00:06:13,470 Ed John: in any one year, which I think differs from the 102 00:06:13,529 --> 00:06:19,140 Ed John: Australian sample. And so I think that probably says something 103 00:06:19,140 --> 00:06:22,169 Ed John: for the Australian market in terms of scrutiny, in terms 104 00:06:22,170 --> 00:06:25,740 Ed John: of focus. And when we also step back and look 105 00:06:25,740 --> 00:06:30,150 Ed John: at the averages just in this year, it was about 106 00:06:30,150 --> 00:06:34,799 Ed John: $5 million per person higher for those foreign domiciled companies 107 00:06:34,799 --> 00:06:37,411 Ed John: as compared to Australian CEOs. So there is that gap. 108 00:06:37,411 --> 00:06:42,419 Sean Aylmer: Okay. Does ACSI have a view on whether it's too much or 109 00:06:42,420 --> 00:06:45,150 Sean Aylmer: not? I mean, 55 times average earnings, and at the 110 00:06:45,150 --> 00:06:47,010 Sean Aylmer: very top of that, you can think of some of 111 00:06:47,010 --> 00:06:50,160 Sean Aylmer: the, well, one particular banker, and I mean, a bunch 112 00:06:50,160 --> 00:06:53,669 Sean Aylmer: of people, healthcare companies where people make a lot of 113 00:06:53,670 --> 00:06:56,310 Sean Aylmer: money. Does ACSI take a view on that or not? 114 00:06:57,060 --> 00:06:59,880 Ed John: Not so much. I think it becomes a really hard 115 00:06:59,880 --> 00:07:02,669 Ed John: question about how much is too much and it becomes in 116 00:07:02,820 --> 00:07:06,029 Ed John: the eye of the beholder. But I think for investors, 117 00:07:06,029 --> 00:07:10,080 Ed John: and particularly for long-term investors, it's often a question of 118 00:07:10,080 --> 00:07:14,520 Ed John: value for money. So do we see these large numbers 119 00:07:14,520 --> 00:07:19,920 Ed John: where these CEOs and teams have actually delivered for their shareholders over the long term? 120 00:07:20,190 --> 00:07:23,880 Ed John: Or is it that old case of large numbers where 121 00:07:23,880 --> 00:07:26,879 Ed John: the performance really isn't there or people are being paid 122 00:07:26,880 --> 00:07:29,280 Ed John: bonuses for simply turning up? 123 00:07:29,820 --> 00:07:34,560 Sean Aylmer: Do you get a sense that boards in Australia are 124 00:07:35,070 --> 00:07:40,110 Sean Aylmer: realistic and pragmatic in how they're setting the remuneration based 125 00:07:40,110 --> 00:07:41,100 Sean Aylmer: on what you just said? 126 00:07:41,880 --> 00:07:45,089 Ed John: I think boards in general are pragmatic. Things like the 127 00:07:45,089 --> 00:07:49,439 Ed John: two strikes rule where investors have that sort of " no" vote 128 00:07:49,650 --> 00:07:53,550 Ed John: and that accountability. I think the dialogue between investors and 129 00:07:53,550 --> 00:07:57,570 Ed John: boards and that scrutiny has been an important factor over time. 130 00:07:57,660 --> 00:07:59,700 Ed John: There will always be outliers, but I think by and 131 00:07:59,700 --> 00:08:03,450 Ed John: large there's been a reasonable job done and again, a 132 00:08:03,450 --> 00:08:07,049 Ed John: reasonable level of scrutiny around outcomes to make sure there 133 00:08:07,049 --> 00:08:08,159 Ed John: is that accountability. 134 00:08:08,759 --> 00:08:11,550 Sean Aylmer: So where do we go from here, Ed John from ACSI? Do 135 00:08:11,550 --> 00:08:16,109 Sean Aylmer: you think that given, let's say, CEO pay was dampened 136 00:08:16,230 --> 00:08:18,780 Sean Aylmer: during that financial year, dampened might not be the right 137 00:08:18,780 --> 00:08:22,559 Sean Aylmer: word, but it's not totally out of sync, where do 138 00:08:22,559 --> 00:08:25,650 Sean Aylmer: you think we go from here given the share market, 139 00:08:25,680 --> 00:08:28,500 Sean Aylmer: what's happened given the economic circumstances? 140 00:08:29,100 --> 00:08:33,930 Ed John: I think that is really the key question, Sean, because 141 00:08:34,349 --> 00:08:39,660 Ed John: anytime remuneration reported, it's backward looking. So our data really 142 00:08:39,660 --> 00:08:44,699 Ed John: looks back a year. But we'll start to see in 143 00:08:44,700 --> 00:08:47,550 Ed John: two months' time when earnings season ramps up, we'll start 144 00:08:47,550 --> 00:08:51,000 Ed John: to see performance numbers as well as CEO pay numbers 145 00:08:51,000 --> 00:08:56,250 Ed John: for financial year 2023. And we know it's been, I 146 00:08:56,250 --> 00:08:58,980 Ed John: guess, a choppy year in markets and some really varied 147 00:08:58,980 --> 00:09:04,858 Ed John: results. And so the key question is, is that variation reflected in 148 00:09:04,860 --> 00:09:08,880 Ed John: outcomes? So particularly where performance is off or companies have 149 00:09:08,880 --> 00:09:12,780 Ed John: been impacted, does that flow through to CEO pay numbers? 150 00:09:13,380 --> 00:09:16,109 Ed John: That's going to be the key test for Australian companies. 151 00:09:16,919 --> 00:09:24,540 Sean Aylmer: And ACSI, given that your members, the 26 Super funds manage on 152 00:09:24,540 --> 00:09:28,139 Sean Aylmer: average 10% of these companies, surely you're going to be 153 00:09:28,230 --> 00:09:32,640 Sean Aylmer: very focused on ensuring that pay does match performance? 154 00:09:32,940 --> 00:09:35,970 Ed John: Absolutely. That's something that ACSI has done for a long time 155 00:09:36,359 --> 00:09:40,290 Ed John: and is a key element of governance. Are incentives actually 156 00:09:40,290 --> 00:09:43,440 Ed John: aligned with how companies are performing over the long term? 157 00:09:44,190 --> 00:09:47,579 Ed John: Are these companies delivering to the kind of end members 158 00:09:47,580 --> 00:09:51,209 Ed John: of Super funds as a key focus? And I think, again, 159 00:09:51,210 --> 00:09:55,259 Ed John: in this reporting season, there'll be particular scrutiny. Some companies 160 00:09:55,260 --> 00:09:57,090 Ed John: will have had a bad year, but we don't want 161 00:09:57,090 --> 00:10:01,170 Ed John: to see boards changing the goalposts in that situation. And 162 00:10:01,170 --> 00:10:04,110 Ed John: I think it will look particularly bad in light of the 163 00:10:04,110 --> 00:10:08,669 Ed John: broader economic conditions if we're seeing some very large numbers 164 00:10:08,759 --> 00:10:11,189 Ed John: if performance isn't there. 165 00:10:12,029 --> 00:10:14,309 Sean Aylmer: Ed John, thank you for talking to Fear and Greed. 166 00:10:14,730 --> 00:10:15,270 Ed John: Thanks, Sean. 167 00:10:15,750 --> 00:10:18,929 Sean Aylmer: That was Ed John, Executive Manager, Stewardship at the Australian 168 00:10:18,929 --> 00:10:22,290 Sean Aylmer: Council of Superannuation Investors. This is the Fear and Greed 169 00:10:22,290 --> 00:10:24,810 Sean Aylmer: business interview. Join us every morning for the full episode 170 00:10:24,840 --> 00:10:28,170 Sean Aylmer: of Fear and Greed, Australia's best business podcast. I'm Sean 171 00:10:28,170 --> 00:10:29,399 Sean Aylmer: Aylmer. Enjoy your day.