The Financial Review today produced its annual salary review for 2009 and it appears that despite claims to the contrary, there is a significant disconnect between executive remuneration and shareholder return. In fact, the notion of pay for performance appears to be a complete myth.

Leading the pack again in 2009 was former Australian Rupert Murdoch. Rupert hasn’t delivered much joy to poor News Corporation shareholders in recent years. Murdoch led News Corp to the $US5.6 billion ($A6 billion) purchase of Dow Jones at the peak of the recent boom, leading to the company writing off $2.8 billion in goodwill earlier this year. Fortunately for Rupert, his pay is based on the company’s performance before write-offs (even those of the multibillion dollar variety). This allowed the thrice-married former Geelong Grammar student to collect $24.5 million this year. His son, James, was paid almost $10 million.

Perennial pay topper Frank Lowy collected the silver medal and his now-usual $16 million salary. Lowy did a magnificent job building Westfield from a delicatessen in Blacktown to one of the world’s leading property companies. Sadly, 2009 was a vintage year for Lowy, with Westfield’s total shareholder return dropping by 33%. Despite being a billionaire several times over, Lowy collected $16 million in cash (and not a cent in equity) while shareholders wallowed in red ink. (One wonders where Lowy is able to find the time to even cash his weekly pay cheque, given his commitments to Australian soccer and various other causes). Lowy has other more pressing problems though — US authorities are believed to be investigating his apparent fondness for bank accounts in Liechtenstein and Switzerland.

As usual, Australia’s leading bankers collected remuneration that would make ordinary workers shudder. Despite the Big Four banks being blessed with taxpayer monies in the form of deposit and wholesale funding guarantees, ANZ’s Mike Smith collected $13 million, CBA’s Ralph Norris $9 million and Westpac’s Gail Kelly $8.5 million. The taxpayer-funded bank assistance also helped destroy any competition from non-bank lenders in the mortgage market while the government continues to dawdle in restricting the banks’ ability to charge possibly illegal penalty fees. One would hope that Mike, Ralph, Gail and Cameron all chip in for a nice bottle of Bollinger for their good friends Kevin and Wayne this Christmas.

Former Qantas boss Geoff Dixon managed to sneak into 7th place — a commendable achievement given the world’s highest-paid aviation executive only served five months in the top job. Dixon’s pay of $10.7 million was helped by him receiving $3 million to compensate for a change to the superannuation laws, which didn’t actually affect Dixon and a retention payment after a failed private equity bid. Dixon had, of course, spent months of company time planning that secret takeover, which was thwarted by shareholders.

In eighth place was Owen Hegarty, the colourful former CEO of Oxiana. Hegarty’s pay largely consisted of a termination gift from the Oz Minerals board of $9 million (which was not approved by shareholders) a few weeks after shareholders expressly rejected a termination payment of $10 million. The payment was especially generous given Hegarty led Oxiana’s ill-fated merger with Zinifex, which came perilously close to destroying both companies.

Rounding out the top 10 was former GPT chief Nic Lyons. Lyons had thought it a smart business model to join forces with the shrewd folk at Babcock & Brown to create a joint venture to invest in European property. GPT contributed billions in debt and equity to the venture while Babcock chipped in a few hundred slum German apartments and their alleged expertise. With the help of Frank Lowy (who collected a couple of prime shopping centres), GPT had earlier rejected a generous offer from Lend Lease.

Lyons then did a sterling job of destroying billions of dollars of shareholder wealth and turning Australia’s oldest and most respected property trust into a laughing stock. (Under Lyon’s guidance, GPT sunk billions into the Babcock joint venture, including $750 million as late as 2006). During 2008, GPT was forced to raise $1.6 billion at $0.60 and $1.7 billion at $0.35, a couple of years after Lyons convinced shareholders to reject Lend Lease’s $3.72 per unit offer. For his efforts, Lyons was paid $9 million last year, although the bulk of that related to forgiving what were supposed to be full-recourse loans.

While high-profile bosses were paid millions to destroy value, some of Australia’s finest executives were able to make do with far less lucre. Richard Uechtritz, CEO of JB Hi-Fi, one of Australia’s best-managed companies, was paid a far more pedestrian $2.95 million, while Brickworks boss Lindsay Partridge was paid only $1.4 million despite returning shareholders a respectable 13.5%. Similarly, Wotif chief Robbie Cooke was paid $1.7 million despite the company delivering total shareholder return of 74% during the year.

It appears that directors of some of Australia’s largest companies, and their highly paid expert remuneration consultants, have a fair bit of explaining to do.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey