CEO Pay Falls to Lowest in a Decade, but Bonuses Remain High: ACSI Survey

Median CEO pay in Australia has reached its lowest point in a decade, according to the annual survey conducted by activist shareholder group, the Australian Council of Superannuation Investors (ACSI). The study examines the salaries of CEOs of ASX200 companies and tracks “realised pay,” which includes the value of cash and equity that CEOs receive. It provides a more accurate reflection of financial outcomes compared to “reported pay.” The survey reveals that while CEO salaries have fallen slightly, bonus payments remain high.

In terms of median CEO pay among the top 100 companies, there has been a decline from $3.93 million to $3.87 million, the lowest figure recorded in the 10 years of the ACSI study. However, it’s important to note that bonus payments have become the norm, with only two CEOs failing to receive a substantial payout.

The decrease in median CEO pay is also observed in the second tier of companies (ASX 101-200), where the median fell from $2.10 million to $1.95 million, lower than any previous year before FY19. Interestingly, reported pay has actually increased in this tier, with the median exceeding $5 million for the first time. ACSI warns that this could be a precursor for even higher realised pay outcomes in the future.

Ed John, executive manager of stewardship at ACSI, highlights that these numbers indicate a potential breakout in CEO pay levels in the future. He emphasizes the importance of boards setting performance hurdles at the right levels to ensure bonuses are linked to exceptional outcomes.

Despite the decline in median CEO pay, bonuses are still a guaranteed addition to their income. The average CEO receives a median bonus of 66.3% of the potential maximum for ASX100 companies and 60.7% for those in the ASX 101-200. Only two CEOs from the ASX100 and six from the ASX 101-200 did not receive a bonus for the 2023 year. ACSI points out that this highlights the fact that CEOs have a higher chance of being terminated than missing out on a bonus.

The study suggests that bonuses should not become an expectation in Australian companies. Instead, they should be linked to exceptional outcomes. ACSI urges companies to focus on productivity and performance when determining bonus payouts.

In terms of individual CEO bonuses, Macquarie Group CEO Shemara Wikramanayake received the highest amount, with $32 million in bonuses. This was the highest award in the 13 years of data collection and only the second time the maximum award has been above $20 million. Greg Goodman of Goodman Group remains the highest-paid CEO based in Australia, with a realised pay of $27.34 million.

Seventeen termination payments were made to ASX 100 CEOs in the 2023 financial year, costing shareholders a total of $33.52 million, the highest amount in over a decade. However, the average termination payment per CEO decreased to $1.97 million, the lowest since FY19. This can be attributed to investor scrutiny of CEO contractual arrangements and changes to the Corporations Act in 2009 that limit termination payments without shareholder approval to 12 months’ fixed pay.

Overall, while median CEO pay has fallen, bonuses remain high. The study highlights the need for boards to set performance hurdles and ensure bonuses are linked to exceptional outcomes. It also emphasizes the importance of avoiding a culture where bonuses become an expectation rather than a reward for outstanding performance.