Top CEO bonuses don’t reflect performance

Annual bonuses at many companies do not resemble performance pay, and instead appear to be a slightly variable form of fixed pay, according to the Australian Council of Superannuation Investors (ACSI).

ACSI’s annual chief executive pay survey found 18 CEOs in the ASX100 received less than half of their maximum potential. Around 86 per cent of ASX100 CEOs received a bonus in FY16, and where bonuses were paid, the median payout was 69 per cent of the maximum.

ACSI chief executive, Louise Davidson, said: “The prevalence of CEO bonuses at consistently high levels raises serious questions about the way performance hurdles are being designed and applied”.

“The fact that only 18 CEOs received bonuses below 50 per cent of maximum indicates that they bear little relation to performance in many companies,” she said.

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“We welcome recent examples of the use of board discretion to reduce bonuses. However, we can’t help wondering why these executives would have qualified for any payments in first place.”

The survey found that six CEOs received the maximum possible bonus and two received more than their normal maximum potential bonus.

ACSI said the average fixed pay for ASX100 CEOs was the same was it was nine years ago, as investor pressure prompted the boards of the largest companies to exercise restraint on CEO pay.

The median realised pay – remuneration including equity award and bonus outcomes – for ASX100 CEOs was $3.78 million in FY16, compared to $3.88 million in FY15 and $3.96 million in FY14.

“It’s refreshing to note that since the introduction of the ‘two strikes’ rule, and an increase in shareholder scrutiny, CEO pay has largely been held in check by Australian boards,” Davidson said.

However, ACSI said it wanted to see more variability in the remuneration paid to individual CEOs to convince the council that they were being appropriately stretched, and investors rewarded, in exchange for substantial incentives.

 “Companies need to explain more of the ‘why’ of their remuneration decisions to their investors – for instance, why is that percentage fair and reasonable, having regard to company performance?” Davidson said.

ACSI noted that while they wanted to include gender pay equity in the analysis, the pool of female CEOs in the ASX200 in 2016 was too small to enable meaningful analysis of the data. Within the ASX100 there were five female CEOs, and four in the ASX101-200.