Avoiding A First Strike During The Pandemic: An ASX Executive Remuneration Study

ceo pay cuts

A new report from CGLytics that covers ASX executive pay in the time of the pandemic, entitled “Avoiding A First Strike During The Pandemic”, released today. The report looks at the executive pay landscape during the pandemic, in particular the transparency with which reductions have been shared and reflect total remuneration.

Get The Full Warren Buffett Series in PDF

Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q2 2020 hedge fund letters, conferences and more

Key findings include:

  • Out of the 60 ASX 300 companies that initiated CEO pay cuts, only 54 of those companies provided a percentage of pay reduction, of which 35 companies reduced CEOs base salaries, 17 companies reduced both the base salary and cash bonuses and two companies cut only the cash bonus.
  • The data shows that CEO pay cuts initiated by the 54 companies in the ASX 300 is anticipated to account for 11.34% of the 54 companies’ combined projected CEO realised pay. For the whole ASX 300, pay cuts and or adjustments is estimated to represent only 2% of CEO realised remuneration (including base salary, cash bonus, and shares vested/options exercised).
  • With Australia’s top CEOs being  paid 78 times more than the average employee, and with major markets such as the UK updating the reporting requirements to disclose the CEO to employee pay ratio, will this urge Australian regulators to implement similar requirements?

“The COVID-19 pandemic has had a severe negative impact on the global market and Australia is no exception,” said Aniel Mahabier, CEO of CGLytics. “Although, in the midst of the crisis, various Australian companies implemented strategies to maintain cash positions, we are still not seeing meaningful sacrifice at the senior level. The average CEO pay cuts represent only 2% of ASX 300 CEOs projected realised remuneration this year. With only 60 companies making CEO pay adjustments due to the pandemic, decisions around executive pay are going to be difficult to justify as unemployment remains high and share prices remain low. Many Australian companies are likely to find themselves in the position to defend their pay practices while being scrutinised by proxy advisors, investors and the society this proxy season.”

Avoiding A First Strike During The Pandemic: An ASX Executive Remuneration Study

Executive Remuneration

  • 61 ASX 300 companies reduced director and/or CEO remuneration.
  • 60 out of the 61 companies reduced CEO pay.
  • Qantas Airways reduced board and executive pay, forfeited CEO and Chair salaries.
  • Myer CEO voluntarily suspended his remuneration.

The COVID-19 pandemic has had a severe negative impact on the global market. Australia is no exception, with nearly one million Australians losing their jobs. Amidst the crisis, various companies called on their board of directors to develop and implement crisis management strategies to maintain cash positions and ensure the health and well-being of their employees3. Some companies have taken drastic measures by standing down employees or reducing executive, director, and employee remuneration to maintain liquidity.

Executive Remuneration

61 of ASX 300 companies reported the lowering of director and/or Chief Executive Officer (CEO) remuneration from March 2020 until the first week of August 2020. Out of the 61 companies, five companies modified remuneration for just the CEO, one for just the directors (chairman and directors excluding CEO), and 55 for both the CEO and directors. In total, 60 companies initiated pay cuts for their CEOs, and 56 companies announced pay cuts for their directors.

Out of the 60 companies that initiated CEO pay cuts, 54 of those companies provided a percentage of pay reduction while the other six did not disclose the specific percentage. In addition, 49 out of the 56 companies that initiated director fee cuts disclosed its percentage of pay reduction, while seven companies did not.

CEO Pay Cut Components

Among the 54 companies that initiated CEO pay cuts and disclosed the pay cut percentages, 35 companies reduced CEO base salaries, 17 companies reduced both the base salary and cash bonuses, and two companies cut only the cash bonus.

CEO Pay Cuts

Nearly all companies initiated pay cuts only to their CEO base salary. However, 17 companies not only reduced their CEO salaries, but also reported a foregoing of their short-term incentives, two of them being Flight Centre and Vicinity Centres.

Flight Centre, one of Australia’s largest travel agencies, announced a 50% pay cut for senior executives and directors until at least the end of FY20. The CEO and executives of Flight Centre will also relinquish all short-term incentive components of their remuneration for the full financial year 2020. Despite announcing a strong balance sheet of AUD 1.3 billion in cash, the company announced the permanent closure of 428 stores and a request for AUD 900 million in financing. One of Australia’s leading retail property groups, Vicinity Centres, announced not only a 20% cut of executive salaries, but also a cancellation of their FY20 short-term incentives. The effects of the pandemic on the company were still detrimental, lowering the company’s property values significantly.

However, the company received support from its shareholders as they helped raise AUD 1.2 billion through 8 institutional placement.

CEO Base Salary Reduction Only a Small Price to Pay

Of the companies that reported CEO base salary adjustments, 26 companies cut the salary by 10-20%, which resulted in an average cut of only 9.23% of the average CEO realised pay in 2019. 22 companies initiated pay cuts of 20-50% for an average cut of 11.91% of the average CEO realised pay in 2019. Interestingly, of the four companies that reduced CEO pay by 70% or more, the average cut was only 12.11% of average CEO realised pay in 2019.

CEO Pay Cuts

CEO Pay Cuts

Among the 61 ASX 300 companies that reported pay cuts from March to the first week of August 2020, the largest portion (26%) came from the Financial sector, which includes real estate, capital markets, diversified financials, banks, and insurance companies. 25% of the companies with pay adjustments are from the Consumer Discretionary sector, which includes automobiles, consumer durables and apparel, consumer services and the retail industries.

The third largest sector is the Industrial sector, which includes airlines, transportation, capital goods, and commercial and professional services industries.

While the repercussions of the COVID-19 pandemic affected many different industries, the airline sector arguably suffered the most. Airline giant Qantas Airways released a statement revealing its intention to cut costs and maintain liquidity for the next six months. The airline company stood down over 25,000 employees and secured AUD 550 million in debt funding. Qantas CEO, Alan Joyce, and Chairman, Richard Goyder, have forgone their full salaries for the financial year, with board members and group executives taking a 30% cut in remuneration. Although the Australian government has begun easing some restrictions, the resumption of international and domestic air travel remains uncertain.

The retail industry has also taken a significant hit, with more than 40,000 retail workers stood down. One of Australia’s largest retail stores, Myer, stood down 10,000 store and store support staff in early March 2020. Myer’s CEO and Managing Director John King and the executive team have voluntarily suspended their remuneration during this difficult period. Despite the closure of its brick-and-mortar stores, Myer has seen a substantial increase in online sales, which has allowed for the return of 20% of stood down employees.

See the full report here.

The post Avoiding A First Strike During The Pandemic: An ASX Executive Remuneration Study appeared first on ValueWalk.