Executive pay: Are CEOs still getting too much?

17/09/09: 'Executive pay: Are CEOs still getting too much?'- A year since the onset of the financial crisis and chief executives' paycheques are being scrutinised more than ever.

Has big business learnt nothing? And how should those of us running small businesses align our pay?

This week alone, the news has homed in on pay rises for chief execs at Commbank, JB HiFi and BHP Billiton (Marius Kloppers got a rise of 51 percent).

In contrast, Foster's CEO Ian Johnston has seen his salary frozen, and even Rupert Murdoch has taken a multi-million dollar pay cut – with a compensation package now valued at $18 million down from $30 million a year ago. Murdoch’s base salary of $8.1 million remains unchanged, but his performance-based incentive pay fell 69 percent to $5.4 million - from $17.5 million a year ago, according to News Corp's records. The topic has even made the agenda of the G20. And earlier this year, Barack Obama called for normalcy and responsibility from chief execs - particularly in Wall Street - to limit unreasonable payouts.

In Australia, it's an issue that has raised ire with Unions and shareholders alike. Executive pay went up by 96 percent between 2002 and 2006, while the average weekly wage rose just 32 percent. Forty years ago CEO pay tended to be made up of base pay and a small percentage as a bonus. A year on since the collapse of Wall Street bank Lehman Brothers kicked off a global meltdown, and the ACTU says executive pay is still far too high.

I wonder if the financial crisis will indeed curb excessive corporate pay. In cautious economic times, should we really still be seeing such huge payouts?

From initial research, perhaps it is more about CEO’s receiving bonuses that are too high for specific goals, than that they are being too highly paid. And of course big pay does not necessarily buy the best CEO or the best skills.

As always, I feel that disclosure and open communication is key and corporate objectives should be shared so stakeholders aren’t surprised - therefore measurement plus reward is clear and transparent.

And let’s just put this in perspective Australia, the top earning US CEO Stephen Schwarzman, head of investment firm Blackstone Group, collected US$702.4 million in 2008.

Back in June this year, the government introduced a bill to amend the Corporations Act to limit payouts to directors and executives to no more than 12 months' base pay, unless approved by shareholders. The bill is now stalled before the Senate economics committee while they are concerned that linking payouts to base salary may end up with skyrocketing base pay, rather than the desired effect of stopping inappropriate, multi-million-dollar payouts to undeserving CEOs.

But what about small businesses?

My first business mentor told me firmly that if I wasn’t making a profit – my business was not a business – it was a charity or a ‘not for profit’.

This resonated sharply and deeply with me and gave me permission through the hard slog of start-up to keep reward in perspective.

Running a small business is about tenacity, long hours and hard toil. And it is important that small business owners are rewarded for this – even if during start up or experiencing hard times.

However small businesses feel things more acutely, often with a more ‘family’ feel than big corporate culture - and if pay freezes have to occur for staff, surely it is appropriate for the boss to be empathetic with this and behave accordingly.

As CEOs and leaders we have to be accountable for business success as well as failure.

As chief execs of small to medium sized enterprises, our job is to drive strategy, growth and survival – just as in big business.

Remuneration is something to think through seriously from the outset and your accountant - plus market research on the earnings of your industry peers - is a great place to start to benchmark your own pay.

While things are tight, it makes sense to rein in pay as you would all other expenses. But traditionally, small business owners do not pay themselves market rates.

They tend to be comparatively underpaid and do not reap the pay they would in the corporate world - or if they were in their role employed by someone else.

So what your thoughts? Should CEOs be given pay rises if job cuts have had to be made in their organisations?

Isn’t it their job to contain costs and ensure the health of the business short and long term?

And if we, as CEOs are charged with a corporation's wellbeing - and cost cuts have to be made for survival - then cutting head count is a corporate reality and necessity.

But is it common sense or just a good PR exercise for a CEO to really justify large bonuses when his/her employees are made redundant?

In which case, what should bonuses cover? Profitability? Shareholder dividends? Increase in revenue?

What proportion should be fixed or base pay? And of bonus? We already have the danger that in cutting bonuses we just drive up base pay.

A final point to consider is that in the wake of the financial crisis, companies could be in danger of taking too short term a look at CEO pay.

Rather than reviewing longer term objectives and strategy, we could be breeding a legion of short thinking, un-strategic CEOs.

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