THE REMUNERATION of top company executives is likely to remain a contentious issue as more and more Australians dabble in the surging stock market.
THE REMUNERATION of top company executives is likely to remain a contentious issue as more and more Australians dabble in the surging stock market.
More than half of the Australia population owns shares either directly or indirectly through a managed fund or self-managed superannuation fund, according to the most recent figures from the Australian Stock Exchange (ASX).
In 2004, 55 per cent of Australia’s adult population, or approximately 8 million people, owned shares (up from 51 per cent in 2003).
The ASX is yet to release 2005 figures, but there are further indications that Australia is becoming a nation of shareholder capitalists who will demand tighter measures to curb corporate greed and avert corporate collapses. And top of the list is reining in fat cat salaries.
There have been deeply held, and often founded, suspicions among shareholders that company executives receive large pay packets at the expense of shareholder returns. Well-publicised payouts for executives who fail to deliver have also done little to quell concerns.
According to Fiona Balzer, corporate information officer of the Australian Shareholders Association, retail investors tend to be justifiably concerned with executive salaries as areas of ‘wastage’ in the business.
“There is a lot of attention paid to executive salary compared to other issues, but we feel that it is at an appropriate level … Excess remuneration is more than about wastage as the remuneration policy is designed to motivate executives and a poorly designed scheme rewards inappropriate behaviour.”
Greater scrutiny of the way businesses conduct themselves and the salaries paid to their executives has benefited from new requirements in the Corporations Act,which put the adoption of the company’s remuneration report to a non-binding vote at the company’s annual general meeting.
The regime was introduced as part of CLERP 9 and applied to most listed companies for the first time in the late 2005 AGM season.
“Prior to the adoption of this initiative we had started to see a decline in the huge payouts for poor performance and a move away from NED [non-executive director] retirement schemes,”Balzer said.
“The increase in transparency required now the remuneration report is debated at the AGM has commenced an improvement in effective remuneration policy and practice.”
Retail investors have benefited from the growth of accessible and affordable over-the-phone and online share trading services such as those offered by Commonwealth Securities (CommSec).
In 2004 the ASX found that share ownership appeared to have broadened to include more Australians on average incomes and non-tertiary level education attainment.
Combined with the non-binding vote on executive remuneration the ramifications of this growth on the interactions between company boards and shareholders are significant.
