Top tier payouts under the microscope

Performance payments generally reflect the level of returns paid to shareholders in conjunction with business performance throughout the year. However in practice the relationship between the two key measures can be complex.

Business performance and company share prices are subjected to external pressures which CEOs and their executive teams have little or no control over, such as rising interest rates, fluctuating commodity prices, financial liquidity, political upheaval and market sentiment, to mention a few.

It is now a harsh reality for many executives that a large proportion of their payouts are at risk, together with any long-term incentives granted in 2005, 2006, 2007 and 2008. Even if individual CEOs have performed well, the current economic climate is likely to limit how much their efforts can be translated into financial growth or positive returns.

Last month’s Beilby Rewards survey revealed that 48 per cent of respondents believed executive salaries are higher than they should be. People who considered executive salaries far too high compared to those who believed they were fair, were evenly split at 26 per cent.

There was no ambiguity when it came to the $31 million payment handed to Telstra ex-CEO Sol Trujillo. A total of 79 per cent of respondents did not support the payment, 14 per cent were not sure, and 7 per cent agreed the job was a tough one and the payment was deserved.

The bottom line is that in the current environment executive payments can no longer continue as they have in the past. The Australian Federal Government has responded to the public outcry over high payouts given to departing CEOs by proposing amendments to the Corporations Act 2001.

However, when we asked what you thought about the Government regulating private business, most responded against the idea, with 60 per cent voting no, 36 per cent voting yes and 4 per cent indicating they were not sure.

The majority of respondents were undecided about whether corporate boards or shareholders should set executive pay levels, but 26 per cent believed that the responsibility lay with the board compared to only 4 per cent voting for shareholders.

Doom and gloom aside, it is during testing times that good CEOs and their executives can really shine by using their business nous and following their instincts rather than seeking the security of the mainstream. Highfliers will pick up on changes quickly, guide the organisation through the worst and put it in the best possible position to create a company that will survive the toughest of times. Such qualities are not easily measured, but they are the competencies that will be deserving of recognition and reward in the months and years ahead.