Last Thursday, one of Australia’s most successful home-grown CEOs, Wal King, launched what appeared to be a broadside at former Telstra chief Sol Trujillo. At Leighton’s annual general meeting in Sydney, King claimed that “all I can say to you is that it won’t be any high-flying American parachuted in at outrageous salaries that make mine look like chicken feed and stay for two years and fill up the jumbo jet and leave … all they have done is ratcheted up salaries for guys like me. They have parachuted in … they have told us what a crappy country we have and how we are also dopey and don’t know what we are doing.”

While the presence of imported CEOs such as Trujillo or former AMP chief George Trumbull or AGL CEO Paul Anthony certainly had an inflationary effect on CEO pay (and negative effect on share prices), none of these executives came close to King for executive largesse.

Under King’s stewardship, Leighton has been one of Australia’s best-performed companies over the past 15 years. However, in recent years, global wobbles have had a telling effect on the owner of Theiss and John Holland. From a high of $65 in December 2007, Leighton’s share price slumped to $16 earlier this year, before recovering to $36 recently, courtesy of widespread government spending on infrastructure projects.

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Despite shareholder return being virtually zero for two years (and earnings-per-share dropping by 32% in 2009), King received remuneration of $29 million since 2008 —  virtually all in cash. (As a comparison, in his final two years at Telstra, Trujillo was paid a comparatively miserly $11 million in cash. Leighton’s share price performed far worse than Telstra’s during that time).

The reason King is paid so much is largely because the Leighton board has a complete lack of understanding as to how to properly align executive pay and performance. King is virtually the sole executive of a large ASX-listed company to receive a bonus based on his employer’s “net profit after tax”. In fact, 1.25% of Leighton’s net profit each year finds its way into King’s bulging pockets — even if the company’s earnings performance is horrid. (A far more sensible way to pay short-term bonuses would be to consider earnings per share or return on equity rather than a direct percentage of profit. Otherwise, executives are able to benefit by simply making money from shareholders’ capital rather than actually growing earnings).

King will also receive a “transition bonus” of $5 million “on achieving satisfactory transition to a new CEO.”

The Leighton board is led by David Mortimer, who has been a director since 1997 and chairman since 2007. Wal King continues to sit on Leighton’s remuneration committee, so it would appear that a downwards adjustment in remuneration is unlikely to occur any time soon.

As for Leighton shareholders, they are not especially impressed with the lucre being doled out. While the Financial Review reported that “only one person voted against the company’s remuneration report, despite a recommendation from two corporate governance firms to vote no on the grounds that King was paid too much” a closer look at the voting results indicates that Leighton shareholders were furious at the company’s remuneration structure.

The headline result is highly misleading — while it appeared that 89% of shareholders supported the remuneration report resolution that ignores the fact that German company Hochtief owns 164 million shares. Taking away Hochtief’s votes and the report was rejected by an overwhelming 62% of Leighton shareholders.

If King really is appalled by the high salaries received by CEOs, perhaps as a member of Leighton’s remuneration committee he should be looking at his own pay packet before casting stones.


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Peter Fray
Peter Fray
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