Executive Remuneration - pay for performance, the myth and the reality

With the Annual General Meeting season well underway in Australia, the issue of Chief Executive and senior executive remuneration again comes into the spotlight for individual shareholders and institutional investors alike. Despite constant statements from remuneration advisers and optimistic sounds from boards, the reality is that paying the CEO more and providing extraordinary pay packages does not have any relationship to financial results for shareholders.

Investment bank, CLSA examined the executive pay of Australia's top 200 companies plotting their pay in comparison to shareholder returns. The exercise demonstrated that there was no relationship whatsoever. The only relationship which was revealed was the size of the salary often equalled the size of the company - ie big companies paid more but it made no difference to their performance. So where does this leave investors including those who have these 200 top companies in their superannuation accounts ? Certainly the need to exert greater upwards pressure on performance and downwards leverage on disproportionately generous remuneration has never seemed more justified.