Shareholder revolt against expanding pay packages for CEOs is starting to influence boards at blue chip companies.
Wesfarmers, the owner of Coles, Officeworks, Kmart, Target and Bunnings, today announced that Rob Scott will be paid less than managing director Richard Goyder when he takes over as head of Australia’s biggest private employer in November.
“We recognise changes in the market that have seen downward pressure on fixed pay levels for CEOs and reductions in overall reward opportunities,” says Wesfarmers chairman Michael Chaney, himself a former Wesfarmers CEO.
“The board and Mr Scott have discussed and recognised the expectations of Wesfarmers’ many stakeholders regarding the remuneration levels of senior executives and believe that this package and those of other senior executives in the group are appropriate and in line with contemporary market practice of peers.”
Scott’s total package is $3 million less than Goyder’s.
His base pay will be $2.5 million, compared to Goyder’s $3.5 million, and his maximum opportunity under the Wesfarmer’s Key Executive Equity Performance Plan is 300% of fixed remuneration or $7.5 million.
Goyder’s pay has a total opportunity of $10.5 million, or $3 million more than Scott.
According to the Wesfarmers annual report, Goyder last year got $5.48 million, down from $9.86 million the year before.
Scott will be the company’s eighth managing director and CEO in 103 years. He started at Wesfarmers in Perth in 1993 before moving into investment banking where he had various roles in corporate finance and mergers and acquisitions. He rejoined Wesfarmers in 2004.
Last year there were more than 100 successful votes at annual general meetings (AGM) against remuneration reports, including shareholders’ votes as high as 84% against pay proposals for CEOs and the board.
Among the most prominent was when angry shareholders voted in November against the Commonwealth Bank’s remuneration report, the first time a big four bank had been rejected in this way by shareholders. This was a first strike. If it happens again, the board of directors is spilled.
At the last moment, the bank also withdrew proposals to add more so-called “soft targets”, which feature non-financial measures, to CEO Ian Narev’s bonus calculation.
Narev’s pay is 100 times larger than the average wage in Australia when taking into account his bonuses. In 2016, his total remuneration was $12.30 million.
Elizabeth Proust, the chair of the Australian Institute of Company Directors, has urged boards to rebuild trust with shareholders following attacks against excessive pay and easy incentive targets for executives.