How many CEOs are really paid (in 7 charts)

2. Is the CEO paid less than before?

Fixed salaries are increasingly becoming a shrinking part of CEO salaries, especially for the top 100 CEOs.

Over the 10 years to FY21, the average fixed salary of ASX100 CEOs has fallen by 0.8 percent annually, according to an Australian Investors Board report. There are currently no CEOs in the top 100 who receive a fixed salary above $3 million.

But that certainly doesn’t mean they are underpaid. Investors are increasingly pushing for a focus on variable payouts to ensure CEOs are paid more in line with company performance. The concept of variable pay has been developed over the years by consultants, accountants, and experts to offer incentives to executives.

That’s where bonuses come into the equation – and they’ve hit record levels.

3. How much is the CEO bonus?

Apart from the CEO’s fixed salary, one part of the bonuses received is an annual or cash bonus. It’s a bonus paid to the CEO for the company’s performance in that year – an annual bonus that often amounts to the same amount as the CEO’s regular salary.

So, if the CEO is paid $2 million (in fixed pay), they may qualify for all or part of the $2 million annual bonus if the company performs well and meets its targets. It’s that simple.

The last or third part is the long-term or stock-based bonus that has been developed over the years to try to align the CEO salary with the long-term performance of the company. These schemes are usually stock or options granted over a period of three or five years if the targets set by the company’s board are met.

The average bonus awarded to ASX100 CEOs last year was a record $2.31 million, exceeding the 2017 record of $2.30 million, according to the latest ACSI report.

Driving a record average is the highest bonus awarded in the 11 years for which data is available – the $19.85 million revenue share received by Shemara Wikramanayake of Macquarie, after providing investors with an 83 percent return in one year.

Two other CEOs were awarded bonuses of more than $5 million: Mike Henry of BHP and Rob Scott of Wesfarmers.

The only incumbent ASX100 CEO to receive zeros in FY20 and FY21 is Alan Joyce of Qantas. Joyce has topped the charts for CEO salaries in previous years.

Investors have warned this AGM season that they will be watching carefully for bonuses after many imposed freezes in 2020 when the pandemic hit. Only 7 percent of CEOs received zeros in FY21, compared to a record 31 percent of the sample in FY20.

4. Where did the extra millions of dollars come from?

One of the biggest topics in executive pay is the reported salary (what should be disclosed in the annual report) versus the true value of the stock or options held by the CEO (realized salary).

Salaries for top executives in a company should be disclosed in the annual report, but they reflect the previous year and are not always exactly what they seem. Values ​​recorded in annual reports for long-term bonuses usually vary from what executives end up receiving years later.

For example, while Wikramanayake received a $19.85 million bonus last financial year, it does not appear in reported or realized payments because, under Macquarie’s revenue-sharing bonus scheme, executives receive 20 percent upfront and the remainder is deferred for three to three years. seven years.

This is where CEO pay packages get really tricky to figure out what people are actually paying – often not determined until years later.

It Australian Financial Overview conducts annual CEO salary salary surveys that turn quickly after company results are published to give a good idea of ​​how CEO pay packages are changing. This includes the value assigned to stocks and options in the year in which they were awarded.

Then there’s the ACSI CEO salary survey, which is even more historic. His latest report released this month relates to a payout package through July 30, 2021. However, it does provide a better picture of how stock and option values ​​end up. They call it “realized pay” or sometimes take-home pay.

The table below provides an overview and contrast. For example, gains for Eisen and Molnar came in August 2020 after each exercising 1.5 million options, at just $1 per option, at a time when the stock price was nearly $90.

(But even that doesn’t give the whole picture. Figuring out what the pair actually got is tricky as Afterpay was sold to Block in a $39 billion deal last year and Block’s stock has dropped from around $176 to under $100 this year – meaning the pair has seen value their share is more than half.)

Paul Perreault of CSL also exercised some of his legacy options, with an exercise price of $107.25, when the stock price was $292. Another 82,800 zero exercise price (ZEPO) options were also awarded to the head of CSL.

The realized gains for Greg Goodman of the Goodman Group reflect the security’s strong price growth and the weight of its incentive payments entirely to equity (meaning shares), with a vesting of nearly 2 million ZEPO, initially awarded in 2015, 2016 and 2017.

5. Real example of how to calculate CEO salary

It might help to look at other real-world examples in detail.

In FY21, Technology One CEO Ed Chung’s salary was $533,068, his annual bonus was $798,085 and his long-term incentives were $616,044. Overall this adds to his reported salary for FY21 as recorded in the company’s annual report.

But ACSI has reduced long-term incentives – the accounting value of shares and options granted – for not being “realized” in FY21. However, it does include the value of any equity vested during the reporting year, using disclosures from the annual report and “change of director interest” notices.

That resulted in a total “realized payout,” or take home pay, of about $4.12 million.

Unfortunately, even this complicated number is not perfect. As ACSI says, there is a difference between the realized payout calculated for its study purposes and the actual value received by the executive because it depends on whether the shares received in the vest are sold or retained.

6: What do CEOs get compared to the average worker?

One of the key findings of the ACSI report, which the union points to, is the difference between CEO and casual workers salaries – and there is regularly a push to disclose CEO salaries versus the average employee salary.

The Australian Trade Union Council quickly issued a press statement warning that CEOs of Australia’s top 100 companies now earn about 100 times the average adult income, and CEO bonuses hit a record high last year, averaging $2.31 million.

“We’re seeing record profits and record bonuses while workers suffer real wage cuts,” said ACTU secretary Sally McManus.

But beyond the record bonus headlines, the numbers actually show a fair degree of restraint on CEO salaries. In fact, over the past seven years, the average salary has increased faster than the top 100 CEOs!

This is something ACSI itself notes in the small print of its report.

“If the Afterpay effect is excluded from the ASX100 sample, the average realized CEO salary is flat in FY21, up less than regular earnings,” he said.

“During the FY14-FY21 period, median earnings have increased by 2.4 percent annually, outpacing the ASX100 realized payouts (again excluding Afterpay in FY21) which have increased 0.6 percent over the same period, but lag behind salaries CEO realization ASX101-200 which is up 4.1 percent annually for seven years.”

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