After doubling the pay packet of CEO Mike Tilley from $4.9 million to an outrageous $8.1 million in 2007-08, the board of Challenger Financial Services have today parted company with the former investment banker who will collect an additional multi-million pay-out on his way out the door.

Tilley’s departure came on the same day that Challenger took an axe to its balance sheet with write-downs of $70 million on two strategic investments plus an after tax loss of $192 million on its investments. This dragged the bottom line down to a net loss of $44.2 million, compared with a net profit of $255 million in 2006-07.

However, Challenger has stoically declared a 7.5c final dividend and the market liked the package of information released today as its share price jumped 13c to $2.38.

Tilley’s latest pay packet, plus a series of other multi-million deal payments for the senior executive team, are revealed on page 19 of this 138-page presentation. It confirms once again how Australia’s $1.4 trillion superannuation pool has become an enormous gravy trains for paper shufflers and financial engineers.

Whilst Challenger has clearly survived the credit crunch, it’s share price has crashed from last October’s high of $6.50 to a low of $1.60 just as Chris Murphy’s Opes Prime funded stake was being unwound.

Mike Tilley has been aggressively defending the model throughout, including this Business Spectator KGB interrogation in March when he joined the large club of CEOs blaming hedge funds and short-selling for their woes.

There was also this June interview with Alan Kohler on Inside Business when Tilley basically called for government intervention into the mortgage market predicting that big bank mortgage margins were blowing out from 180 basis points to 400 basis points because little guys like Challenger could no longer compete after the credit crunch.

Challenger’s key businesses certainly appear to be in decline. Funds under management are down from $19 billion to $15 million over the past 12 months and the home loan book shrunk by $2 billion to $21 billion over the past 6 months. However, it won’t got the way of Babcock, Allco and friends because the capital position is stable and its main businesses are APRA-regulated.

After today’s loss, Challenger claims to have net assets of $1.63 billion when the market is valuing the business at $1.4 billion so Ernst & Young, which audits most parts of the Packer empire, could have insisted on more write-downs.

The Tilley pay packet and guaranteed $1.75 million termination payout just confirms James Packer’s growing reputation for being quite soft when it comes to executive payouts.

John Alexander, Eddie McGuire and now Mike Tilley really should form the “James Packer appreciation society” because they have all been overpaid by Australia’s second richest man, collecting between $20 million and $40 million for performances that haven’t warranted such generosity.

Packer is the largest Challenger shareholder who sits on the remuneration committee so this year’s AGM should be lots of fun.

*Check out this “dead parrot” rave from last Friday’s controversial AWB EGM.

Peter Fray

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