Executive Pay Position Paper

The Business Council of Australia today released a position paper in response to the continuing debate over pay for CEOs and other senior business managers.

The BCA paper says clear examples of excessive pay and reward for underperformance had damaged Australia’s corporate sector, but warns further regulation of publicly listed companies in this area would be counterproductive.

The paper outlines the level and extent of regulation that already applies to executive pay, as well as steps taken by corporate Australia to supplement this through clear and concise guidelines on pay structures, board decision making and disclosure.

It also highlights how the majority of boards of publicly listed companies were now taking steps to make sure contracts of senior company managers were more closely tied to performance hurdles, and were seen to be so.

BCA Chief Executive Ms Katie Lahey said that because increasing levels of regulation and disclosure were being applied exclusively to publicly listed companies, the issue of executive pay and the regulatory response was focussed almost entirely on the listed company sector.

“In contrast, private companies or firms operating locally but owned overseas were competing for the same pool of executive talent but were not subject to the same level of regulation and scrutiny. As a result, listed companies may not be able to attract the best executive resources if regulation became excessive or overtly inhibitive.

“At the same time, the listed company sector should do more to better communicate the structure of executive contracts to shareholders, including spelling out in clear detail how the contracts are structured, and the link between executive pay and shareholder value,” Ms Lahey said.

While there had been clear examples of excess within some executive contracts, the paper says executives in Australia were paid in line with global benchmarks needed to attract the best executive resources to run local listed companies.

The paper argues that CEO salaries have increased because of three factors:

  • The scale of the position has increased as the scope, size and responsibilities of major listed companies expands.
  • Its complexity has increased, reflecting how companies operate in an increasingly competitive and global market.
  • The position has become riskier, as short-termism and lower tolerance of corporate underperformance combine to make the average tenure of Australian listed company CEOs much shorter.

To assist companies better communicate executive contracts, the BCA is developing a series of guidelines for listed companies to consider when communicating the level and rationale for pay.

Executive Remuneration Position Paper