For all the talk of alignment and skill, there appears to be one clear and dominant rationale which appears to underline executive remuneration — a company’s size. Despite the millions paid to remuneration consultants and hours spent by Remuneration Committees, the rule appears clear: the bigger the company, the more the CEO is paid, regardless of how difficult the job is, or how successful the executive’s tenure has been.
The best example of this is the remuneration paid to banking executives. Unlike many other industries or small businesses which are often left to wither and die in the face of market forces, the banking sector remains a protected species. Last year it was virtually saved by taxpayers. In October 2008, during the height of the global financial crisis the Federal Government (upon the urgings of de facto advisors, Macquarie Bank), instituted a guarantee of wholesale funding and a subsequent guarantee on bank deposits.
The wholesale funding guarantee had a couple of fairly substantial benefits — firstly, it allowed Australian banks to raise cheap debt via overseas sources. More importantly, it virtually wiped out any non-bank competition in the lending market (the smaller banks are required to pay a far greater premium to access the funds). The big four banks now write almost every home loan in the country. The deposit guarantee also served to further lower the banks’ funding costs.
Fortunately for our bankers, Kevin Rudd and Wayne Sawn are far more generous than their United States-based counterparts. While recipients of TARP money in the US are being overseen by Pay Czar, Kenneth Feinberg, Australian banks are free to pay their executives as much as they desire – notwithstanding the fact that their very survival was paid for by Australian taxpayers. (Feinberg recently capped the remuneration received by various executives of Citigroup and the Bank of America).
Apart from the explicit assistance, Australian banks have also benefited from other government policies, such as the ill-conceived “first home owner’s grant”, which contributed to a housing bubble and boosted the banks’ loan income. The grant also allowed the banks’ largest security, Australian residential property, to substantially increase in value.
Given that their job has been made somewhat easy courtesy of the taxpayer guarantees and grant, bank shareholders may have expected senior management’s remuneration to be reduced this year.
Alas, the four pillars have taken a vastly different approach to that of Macquarie Bank, which gave CEO, Nicholas Moore, a substantial pay cut in 2009.
ANZ boss, Mike Smith, who is spearheading the bank’s foray into Asia (the graveyard of many Australian businesses) headed the pack, collecting $11 million last year. ANZ’s net profit slumped by 10 percent.
Westpac’s Gail Kelly, who led the bank’s merger with St.George (a decision which has already cost Westpac shareholders $500 million) received $10.6 million. Just ahead of the Commonwealth Bank’s Ralph Norris, who was paid $9.2 million. Even new boy, Cameron Clyne, head of NAB, managed to snare $5.2 million. The payment was especially generous given the former consultant has only been in the job since 1 January 2009.
Kevin Rudd may publicly deride extreme capitalism — but the Federal Government’s policies appear to be aiding and abetting it.
Crikey is committed to hosting lively discussions. Help us keep the conversation useful, interesting and welcoming. We aim to publish comments quickly in the interest of promoting robust conversation, but we’re a small team and we deploy filters to protect against legal risk. Occasionally your comment may be held up while we review, but we’re working as fast as we can to keep the conversation rolling.
The Crikey comment section is members-only content. Please subscribe to leave a comment.
The Crikey comment section is members-only content. Please login to leave a comment.