If the annual executive salary review in the Tuesday’s Australian Financial Review confirms anything, it is that the notion of “pay for performance” is one of the great myths of the past two decades. The AFR noted that in 2007/08, as the stock market dropped 16.9% (it has since fallen far further), executive salaries actually increased, from $2.96 million to $2.97 million.

Fortunately for executives, a great deal of their remuneration is paid by way of fixed salary or short-term cash bonus payments. Shareholders would be forgiven for thinking that short-term bonus payments reflect performance or shareholder return. Alas, not for the top end of town.

Former Australian newspaper mogul, Rupert Murdoch, was again at the top of the class, paying himself $28.6 million. Murdoch (who has an interest in 326 million NWS shares) is now in the unfortunate position in which the best thing that could happen to his investment would be for something unfortunate to happen to Rupert. NewsCorp’s share price is currently around $12.29 — down from $24 when Rupert relocated to the shareholder-unfriendly jurisdiction of Delaware in 2004. Since then, shareholders have paid Rupert more than $100 million to oversee a company whose share price has been sliced in half, helped by New Corp’s virtually indolent corporate governance regime and Murdoch’s debt fuelled acquisition of the Wall Street Journal.

While Murdoch tops the class for quantum, few better case studies outline the folly of executive pay better than Asciano. Asciano was spun-off from Toll Holdings in June 2007. Former Toll boss, Paul Little, remained as CEO at Toll, while Mark Rowsthorn (who is the son of Toll’s first Chairman, Peter Rowsthorn Snr.), was appointed CEO of Asciano. Asciano ended up taking the infrastructure assets and most of the debt, while Toll kept the logistics assets.

At the time of the demerger (in June 2007), Asciano securities were trading at $10.76. Asciano securities recently slumped to 66 cents (before recovering to around $1) after an unfavorable broker’s report was published, advising shareholders to cut their losses and sell the securities. Since splitting from Toll, Asciano securities have lost 90% of their value. Despite this, for the year ending 30 June 2008, Rowsthorn collected $3.1 million in cash and bonus payments. While Rowsthorn graciously agreed to forgo $750,000 from next year’s bonus, this gesture is beginning to look a little less generous given that some analysts suspect Asciano won’t be around to pay a bonus next year at all.

Rowsthorn’s brother, Peter, is one of Australia’s most loved comedians, recently appearing in Kath and Kim as Kim’s long suffering husband, Brett. Few however knew of Mark’s comic talents, with the Asciano boss turning the company’s corporate governance regime into a laughing stock in less than eighteen months.

There is also a touch of sadness this year, with former Macquarie CEO, Alan Moss, making his final appearance on the best paid CEO list. Moss collected $27.2 million in cash this year and has been paid $95 million since 2004 — during that time, shareholders received substantially negative returns.

Executives need not worry too much about adverse market movements. In the eyes of many directors, the definition of “pay for performance” has been extended to include “pay for poor performance”.

Peter Fray

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