There have been some very high executive payouts in recent years — boardrooms seemed content to plunder shareholder coffers to pay multimillion-dollar stipends to the likes of Wal King, Richard Leupen, Allan Moss, Phil Green and Geoff Dixon. But those esteemed group of executives were at least employed by shareholder-owned companies; the same can’t be said for the head of Australia Post, Ahmed Fahour.
In its annual report (buried late on Friday to generate the least possible public attention), AusPost announced a steady 14% rise in revenue to $5.8 billion. However, if AusPost were a publicly listed company, shareholders wouldn’t be impressed by its performance. Sophisticated investors look largely to a company’s return on equity to assess performance — that is, how efficiently is the company using its invested capital. In the case of AusPost, it appears the answer is not very well — the entity’s return equity (stripping out an abnormal superannuation gain) actually fell from 16.8% to only 10.6% in 2013. The main reason was a sharp increase in capital used, with capital expenditure rocketing to $386 million. In short, AusPost is generating more profits, but only by using greater capital. (At the same, time, the business’ operating cash flows worsened, from $551 million in 2012 to $450 million.)
By virtue of its status and ownership, AusPost is a very unusual entity. The traditional mail business (its letter delivery business) notionally loses a lot of money ($218.4 million), while its unregulated packages business makes a lot of money ($648 million). Some say that Fahour and his fellow executives face a difficult task because of AusPost’s universal service obligation, but that overlooks an inconvenient truth: the money-losing regulated business gives AusPost’s package an incredible competitive advantage. That’s because the package business can use the entire AusPost network, including some 4400 retail outlets (of which 2651 are in rural areas) and the huge network of posties. So while AusPost’s package business doesn’t technically have a monopoly (it faces competition from a number of players like Toll and DHL), none of its competitors has its huge inbuilt advantage, especially with rural and east-west deliveries. That advantage comes from the infrastructure associated with the letter business.
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Despite working for a public utility, Fahour was paid an unprecedented $4.8 million in 2013, including a whopping $1.9 million base salary and more than $2 million in incentive pay.
To fully understand the enormity of Fahour’s remuneration, it needs to be compared with other well-paid bosses. Fahour’s payout would have placed him among the top 40 executives in the country — that’s comparing against every single listed public company (not merely government enterprises). For example, Fahour was paid more than the bosses of Woolworths, Woodside Petroleum, Village Roadshow, Seven, Fairfax, Tabcorp, Seek, Super Retail Group, David Jones and JB Hi-Fi received last year. And don’t forget, those executives run highly profitable, publicly listed companies and have to answer to shareholders. Fahour is in charge of a largely protected monopoly and is paid by taxpayers.
Fahour’s remuneration is even more remarkable when compared to his international peers. The US Postmaster General (who runs an organisation many times larger than AusPost) received US$384,229 in 2012 (a figure that was criticised by US law-markers for being too high). That means Fahour is paid more than 10 times what his US counterpart is paid. Moya Greene, the head of Royal Mail in the UK, was paid 1.47 million pounds. Greene, who was roundly criticised for being overpaid, received around half of what Fahour was paid. Canada Post boss Deepak Chopra was paid a base salary of only CA$497,100 with the possibility of a 33% bonus.
Fahour’s salary isn’t merely high, it’s completely off the scale.
While Fahour, a former member of the BRW Young Rich List (by virtue of his roles at Citigroup and NAB), has become one of Australia’s highest-paid executives, he appears to show far less generosity to his fellow AusPost employees. Earlier this month, the Communications Workers Union sued Australia Post and Fahour personally after it refused to allow payroll deductions for union membership fees. The union alleged that the payroll stance was spurred by the Victorian union’s refusal to sign a new enterprise agreement.
Australia Post workers received a pay rise of 1.5% in 2013. Fahour, already one of Australia’s highest-paid executives, received a pay increase of 66%.
Adam Schwab is the author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed, published by John Wiley & Sons in 2010