Value an integral element when setting CEO pay: AMP Capital

By AMP Capital media team

Australia’s chief executives receive, on average, more than double the total pay of the second highest paid executive in their company, according to an analysis of executive pay in AMP Capital’s latest Corporate Governance Report.

The analysis of pay received by executive teams in the S&P/ASX 2001 also looks at the way in which executive pay is set and reviewed.

AMP Capital has found that, including bonuses, the average CEO was paid a total of $3.8 million in 2014. Excluding the CEO, the average key executive2 at a company in the S&P/ASX 200 received $1.4 million while the second highest paid executive received an average of $1.6 million.

AMP Capital Corporate Governance Manager Karin Halliday: “CEOs deserve to be paid a premium for running a listed company in Australia as every facet of their role is crucial to investors. As investors, we are particularly interested in the board’s rationale for the size and composition of executive pay. Executive remuneration should be weighted towards being a fair payment for the role for which the executive has been hired. We look for evidence that executive pay is reasonable and aligned with shareholder interests.

“We recognise the challenge of setting pay, particularly when a new CEO begins. We encourage companies to set executive pay with reference to the value the executives provide rather than simply allowing past payments or global benchmarking studies to determine future payments. We also encourage boards to be transparent about the factors they consider when setting pay so shareholders can assess it appropriately.”

The Corporate Governance Report has also revisited the topic of gender diversity among Australian listed company boards, finding continued improvement. In 2010, 60 per cent of the companies AMP Capital held had no women directors. By 2015, this number had fallen to 21 per cent, which is tracking in the right direction although more remains to be done.

Ms Halliday said: “AMP Capital believes there is a sound business case for improving gender diversity. In addition to demonstrated links between performance and the number of women on a board, we have found that when companies have more women directors, they present fewer characteristics of poor governance.”

Given the proven benefits of diversity, AMP Capital encourages companies to focus on developing their senior women and addressing unconscious bias by casting the net more widely when making appointments.

The AMP Capital Corporate Governance Report also includes an analysis of what investors should make of the Paris Climate Change Agreement as well as an overview of AMP Capital’s proxy voting and engagement activity.

During 2015, AMP Capital submitted votes on 1453 resolutions at 279 company meetings. Of these resolutions, 90 per cent were supported. AMP Capital either voted against or specifically abstained from voting on around 9 per cent of resolutions. AMP Capital was excluded from voting on 1 per cent of resolutions due to conflicts of interest3.

In the full year 2015, the number of remuneration reports AMP Capital supported continued to rise; this year 84 per cent of reports were supported, up significantly from the 2008 low of 61 per cent.

AMP Capital Financial Year Proxy Voting Statistics2015201420132012
Number of company meetings279308319332
Number of resolutions voted on1453168516451734
Total % of resolutions not supported10%12% 12%  14%
Remuneration reports not supported16% 16%17% 25% 

The Corporate Governance Report can be downloaded at:

1AMP Capital collected statutory pay data on all companies that were members of the S&P/ASX 200 at 2014 year end. Data on CEO and the next highest executive was collected when those executives were in place for the entire financial year of the company.

2A key executive is defined by accounting standard AASB124 as an executive that has the authority and responsibility for planning, directing and controlling the activities of the company. AASB124 requires companies to report remuneration paid to these key executives in their accounts.

3This situation arises when, for example, AMP Capital has participated in share issues on behalf of our clients and is therefore deemed to have a conflict of interest and is automatically excluded from voting to ratify that transaction.

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors (UK) Limited, Registered Office at Companies House, 4th Floor Berkeley Square House, Berkeley Square, London W1J 6BX (no. 05524536) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

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