Executive pay and 'golden parachutes' cut by regulatory changes
Executive pay eased last year, while termination payments plummeted under new rules, a report has found.
The annual report by the Australian Council of Superannuation Investors (ACSI) shows the typical fixed pay for a chief executive at a top 100 ASX-listed company fell by nearly 7 per cent to $1.83 million in the 2013 financial year.
In the 13th year of the study, ACSI - a body which represents not-for-profit super fund interests - found that average CEO fixed pay has been essentially flat since financial year 2008, before the financial crisis took hold in earnest.
Moreover, the broader measure of total cash pay also fell in financial year 2013 to $2.53 million - the lowest level since 2006 - while the median cash bonus fell more than 10 per cent to below $1 million.
ACSI's chief executive Gordon Hagart said average shareholder returns have been fairly strong over the post-financial crisis period, meaning that the flat pay was not primarily a result of poor performance.
Instead he said the declines reflect a combination of greater shareholder engagement and new regulations, such as the "two-strike" rule, that have put pressure on boards to moderate the pay and bonuses they award to executives.
"It really is a genuine tightening of structures and an improvement of the overall approach that companies are taking," he told ABC News Online.
Workers slowly gaining ground on bosses
As an illustration of the effect regulations can have on limiting executive payments, Mr Hagart points to a steep 70 per cent fall in so-called "golden parachute" termination payments to CEOs, who are often being effectively sacked for underperformance.
The new rules introduced into the Corporations Act in 2009 require a shareholder vote if companies wish to award a departing CEO a termination payment worth more than a year's pay.
Mr Hagart said the typical termination payment is now $1.3 million, down from $3.5 million in 2008, saving shareholders of the top 100 companies about $70 million a year.
"Those are real dollars that are back in the pockets of shareholders and super funds, and their own members - the person on the street, rather than being paid out as golden parachutes," he added.
While CEOs are still far from the poor house, Mr Hagart said the declines in pay have helped peg back what had been a rapidly growing divide between executive pay and average earnings over the 1990s and early 2000s.
"Around about 2007, the average CEO in the [ASX] 100 was being paid about 94, 95 times the average worker, that ratio has fallen to about 60, 63 times, so that's a material decrease," he said.
"Nobody's denying that the CEO of a large company in Australia makes a good living, that much is clear, but we have I think avoided in Australia some of the crazy excesses that you see, notably in the US where that multiple would be 300, 400 times maybe in the S&P 500 [top listed companies]."
