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A u s t r a l i a n C o u n c i l o f S u p e r a n n u a t i o n I n v e s t o r s CEO Pay in ASX200 Companies ACSI Annual Survey of S&P/ASX200 Chief Executive Remuneration - Aug 2016 This study was commissioned by the Australian Council of Superannuation Investors, and conducted by Ownership Matters About ACSI The Australian Council of Superannuation Investors (ACSI) is a collaboration of Australian superannuation funds and international asset owners, bound together by their common interests as long-term investors in the capital markets. The focus of ACSI’s research, policy and representation is environmental, social and governance (ESG) investment risks and opportunities. ACSI has 29 Australian superannuation fund members, who collectively manage over $450 billion in assets on behalf of over eight million Australian superannuation fund members and retirees. ACSI’s six international members are among the largest and most respected asset owners globally in terms of their approach to corporate governance. The Australian Council of Superannuation Investors Ground Floor 215 Spring Street Melbourne, 3000 Website: www.acsi.org.au About Ownership Matters Ownership Matters is an Australian governance advisory firm. Its principals have collective experience of over 30 years in advising institutional investors on governance issues at ASX listed companies. Ownership Matters Pty Ltd Level 5 167 Queen Street Melbourne, 3000 Website: www.ownershipmatters.com.au Foreword This is ACSI’s 15 th annual survey into CEO Pay in Australia’s largest listed companies. It’s a valuable resource for investors, tracking, long term trends and highlighting emerging themes.In 2008, for example, fixed pay seemed to be set on a sky-high trajectory. Between 2001 and 2008, median fixed pay for Australian CEOs rose a staggering 120%, from $780,975 to $1,745,856. But in the wake of the GFC, the strong representations that investors and others, including ACSI, had been making about executive pay levels, were listened to and the ‘two strikes’ rule was introduced. Year by year, we’ve since seen fixed pay come down. To be clear, the shrinking of fixed pay is certainly not due to incumbent CEOs taking pay cuts, though they are receiving minimal pay rises. It’s down to boards taking the opportunity to pay the replacements of departing CEOs less. These issues combined mean that in 2015, median fixed pay for 2015’s ASX100 CEOs was back to pre-2008 levels, at $1,715,087. It’s interesting to note that the same cannot be said for CEO pay in the USA and UK, which continues a seemingly inexorable rise. Termination payments had been following a similar downward line, peaking in 2008 with a median of $3.5 million, then dropping swiftly, following investor calls and the Corporations Act amendment which compelled any company wanting to pay its CEO a termination payment greater than 12 months’ salary to first to seek shareholder approval. It’s to be hoped that a rash of $2 million-plus payouts in 2015 proves an anomaly. But one issue that has remained a nagging constant is bonuses – both their size and their frequency. The median bonus was $1,360,000 in 2007, dipped under the million mark in 2013 at $950,000, and in 2015 was back up to $1,162,488. It is becoming increasingly obvious that more CEOs are getting them, especially in the ASX100. In 2015, 93% of our sample ASX100 CEOs received a median 76% of their maximum bonus. That’s the highest proportion since 2008, a year renowned for hitting new heights in CEO pay, bonuses and termination payments. It’s clear that bonuses are the new normal. So many CEOs receiving such a big percentage of their maximum bonus raises serious questions about the appropriateness of bonus hurdles, and begs the question – are bonuses really just fixed pay dressed up as at-risk pay? As owners representing the retirement savings of millions of Australians, this is concerning. Independent company directors should be acutely aware that despite the lowering levels of CEO pay, the community believes it is out of step, representing as it does many multiples of ordinary people’s wages. Equally, we believe boards risk an investor backlash if they do not keep a tighter rein on management rewards. Louise Davidson Chief Executive Officer 4 │ CEO Pay in the S&P/ASX200: August 2016
Executive summary This is the 15 th ACSI S&P/ASX100 CEO pay study, and the fifth including data for the entire S&P/ASX200 (ASX200). It is the second to include ‘realised pay’ for all CEOs in the sample. This development is significant, as it includes detail on the actual value received by CEOs from their equity incentives vesting, as opposed to the accounting values required to be disclosed under the Corporations Act. Throughout the research, references are made to ‘reported’ pay and remuneration. This reflects the remuneration reported by ASX200 companies under the statutory reporting requirements referred to above (an example reconciliation of realised and reported pay is included on page 8).Overall pay levels down: Both realised and reported ASX100 CEO’s pay were down slightly on FY14 levels, with median reported pay declining 3.1%, and median realised pay declining 2%. Realised and reported pay levels have declined substantially in the ASX101-200.- Average realised pay was $1.89m, down 15% from $2.23m in FY14. - Average reported pay dropped 24%, from $2.34m in FY14 to $1.78m. - The median realised pay for ASX101-200 CEOs fell 18.7% to $1.41m, while median reported pay was down 14% to $1.47m. One reason for the drop in average remuneration was the absence this year of the high pay outcomes in recent IPOs that distorted prior year figures. For example, the FY14 realised and reported pay numbers were topped by Nine Entertainment Co.’s (now-departed) David Gyngell, with realised pay of $18.03m and reported pay of $19.59m in NEC’s first full year after the 2013 IPO.Bonuses prevalent: The news from the 2015 study is not all bad for ASX100 CEOs. 93% of all sample CEOs received a bonus - the equal highest number in the history of the study. The median bonus paid rose 9.2% to $1.16m, while the median bonus accrued rose 5.8% to $1.6m. Bonuses in smaller companies seem harder to achieve. In the ASX101-200 sample, median bonus paid fell 1.6% to $329,000 while a third received no bonus, up from 21% in FY14. For the first time, the study includes data on the proportion of maximum bonus awarded, with the median proportion of maximum bonus awarded across the ASX100 sample 75.8%, compared to 56.4% for the ASX101-200 sample.Highest paid CEOs: The highest realised pay in the ASX100 was $24.75m between Westfield’s co-CEOs, Peter and Steven Lowy, who also had the highest reported pay at $21.71m. Ramsay Health Care CEO Chris Rex, who was the highest realised pay CEO in FY14 with $30.8m, was still among the highest paid CEOs on a realised basis in FY15 with $15.4m. The highest-paid individual CEO on a realised basis was Seek Limited’s Andrew Bassat at $19.39m (FY14: $17.95m), while the highest-paid individual CEO on a reported basis was Macquarie’s Nicholas Moore at $16.5m. Best of the rest. The highest realised CEO pay in the ASX101-200 were the co-CEOs of Charter Hall, David Southon and David Harrison, at $12.8m, with Premier Investments’ Mark McInnes receiving the highest individual realised pay at $10.34m. Fixed pay declining. The FY15 study confirms the ongoing decline in ASX100 CEO fixed pay, as boards held fixed-pay levels flat, and paid new appointments less. Median fixed pay has declined almost 12% from a peak of $1.95m in FY12 to $1.72m in FY15, while the average has fallen steadily from a peak of $2.02m in FY09 to $1.87m in FY15.6 │CEO Pay in the S&P/ASX200: August 2016
1 Westfield Corporation, 2015 annual report, pp.25-30. 2 Seek Limited, 2015 annual report, p.33; change of director’s interest notice, 16 January 2015. 3 Scentre Group, 2015 annual report, pp.22-24. 4 James Hardie Industries plc, 2015 remuneration report, pp.11,15-16; change of directors’ interest notices 11 June 2014, 23 September 2014 and 20 March 2015. 5 Ramsay Health Care Limited, 2015 annual report, pp.66,68. 6 Domino’s Pizza Enterprises Limited, 2015 annual report, pp.22,25. 7 Caltex Australia Limited, 2015 annual report, pp.37-38. 8 Aristocrat Leisure Limited, 2015 annual report, pp,45,48; change of directors’ interest notices, 8 October 2014, 8 January 2015 and 6 February 2015. 9 Challenger Limited, 2015 annual report, pp.29,31-32; change of directors’ interest notices 2 September 2014, 22 September 2014 and 6 March 2015. Realised vs reported pay levels: Realised pay was again higher than reported pay levels in the ASX100. The average realised pay for the 86 ASX100 CEO reports in the sample was 11% higher than average reported pay, at $5.54m (FY14: $5.61m) against $4.99m (FY14: $5.01m).Termination pay: The number of large termination payments in FY15 rose, relative to FY14. In FY14 there were two very large termination payments (at PanAust and what was then Leighton Holdings, but is now CIMIC) and only seven other payments in excess of $1m. In FY15 there were nine CEO termination payments in excess of $2m, although the largest, $6.68m to former AGL Energy CEO Michael Fraser, was less than half the amount received by former Leighton CEO Hamish Tyrwhitt.CEO Pay in the S&P/ASX200: August 2016 │ 7Methodology The 2015 study includes the pay of CEOs of all companies in the ASX200 for their 2015 financial years (FY15; the years included range from 31 January 2015, for Sigma Pharmaceuticals, to 31 December 2015). ACSI commenced its longitudinal study of ASX100 CEOs’ pay in 2001, and so has 15 years of data on CEO pay over time for this cohort - and five years of data for the ASX101-200 group. The 2015 sample included 86 ASX100 CEOs (FY14: 83) and 70 ASX101-200 CEOs (FY14: 75). Not all constituents of the ASX200 as at 30 June 2015 were included because: Some CEOs were appointed mid-way through the financial year, and so their disclosed remuneration was for less than 12 months. These individuals are removed to avoid distorting total remuneration figures. A small number of entities in the ASX200 index as at 30 June 2015 were externally managed (such as Charter Hall REIT and Investa Office Fund). Those entities do not disclose remuneration for their executive team because they are not employees of the listed entity. Some other companies were excluded as they did not prepare an annual report for FY15 due to merger activity despite being part of the ‘sample’ at the census date. Companies that fell into this category were iiNet and Sirius Resources. Companies domiciled outside of Australia and subject to different remuneration disclosure requirements, such as Henderson Group, are not included. As in past years, entities such as James Hardie (domiciled in Ireland) and Oil Search (domiciled in PNG) are included in the sample as they disclose remuneration on the same basis as Australian companies. Other entities such as APA Group, Spark Infrastructure and Dexus Property Group (internally managed Australian trusts) are included for the same reason.All pay figures are in Australian dollars, and are as disclosed in the annual report. If the listed entity discloses pay in another currency (typically US dollars) these figures have been converted into AUD using the average exchange rate for the relevant financial year, or in some cases, the AUD figures provided as supplementary disclosure by the company. In the case of entities with joint CEOs - Westfield Corporation, Charter Hall and Village Roadshow - the combined remuneration of the joint CEOs has been included in the sample. This report refers to ‘CEO pay’ although at some listed entities the executive whose pay was analysed is not the person carrying the formal title of CEO. This could be, for example, because the company has an executive chairperson and a separate CEO, and the executive chairperson is the effective leader of the company’s management. As an example, Harvey Norman's Gerry Harvey is treated as CEO for the purposes of this study, despite being executive chairperson. This year’s study also includes realised pay data for the entire sample, using the realised pay methodology employed since the 2012 study. Realised pay is calculated based on ‘cash pay’ – essentially reported pay excluding share-based payments expense – and the value of equity that vested during the year using disclosures from annual reports and change of director interest notices. The value of options with an exercise price is assessed when they are exercised rather than when they vest; the value of zero exercise price options (ZEPOs) is assessed on vesting. As an example of how realised pay is calculated, Table 1 (overleaf) shows how the realised pay total for Macquarie CEO Nicholas Moore was determined based on the reported pay disclosures for FY15. 8 │CEO Pay in the S&P/ASX200: August 2016
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