Golden parachutes stirring anger in Australia

By GREG ANSLEY

Frank Cicutto has almost 14 million more reasons to enjoy his golf these days, unhappy as he may be at why he has so much time on his hands and furious as many Australians are with him.

Cicutto, the Italian-born banker who arrived in Australia as a toddler five decades ago, this week resigned as chief executive of the National Australia Bank following the foreign exchange trading scandal that whipped a further A$360 million ($399 million) from the financial giant.

The desperate gambling by four rogue traders was not the only disaster to have befallen the bank during Cicutto's watch: other writedowns and losses amounted to about A$5 billion ($5.5 billion).

Not, you might think, a great record but when Cicutto jumped from NAB he left with a golden parachute of accrued annual leave, long service leave, superannuation, options, bonus and resignation payments worth a whisker under A$14 million. And, presumably, he still had a fair bit in the bank from last year's salary package of A$7.7 million, the highest of any banking executive in Australia.

"I don't think anyone deserves that much money, particularly in the circumstances that he's in," said Mark Latham, the working-class hero from Sydney's western suburbs who will lead the Labor Party against Prime Minister John Howard in this year's federal elections.

Howard was also uncomfortable with the Cicutto payout: "I share the view that people who are seen to have not been successful shouldn't get high payouts ... I can understand the irritation of the public when it looks as though somebody who hasn't done a good job - and I've got to be careful what I say - nonetheless walks away with a very big payout."

Others were far less cautious: "obscene" was the most common verbal missile launched in what has become the latest assault against enormous, frequently disguised, executive salaries, and the whopping platinum handshakes given to bosses leaving corporate ships they have seriously holed.

The Australian Stock Exchange and Howard's Conservative Government have already reacted to growing public fury with tighter rules on executive remuneration. Labor, with fiery rhetoric, promises much more if it wins power.

Fury has been fuelled in Australia by a series of corporate collapses - most notably insurance giant HIH and telecoms high-flier OneTel - as well as such agonising contractions as that suffered by AMP, all of which have revealed huge payments to the officers responsible.

In what Shadow Minister for Corporate Governance and Financial Services Stephen Conroy described to last week's Labor conference as the year of corporate greed, last year witnessed:

* Christopher Cuffe, former chief executive of Commonwealth Bank subsidiary Colonial First State, received a record A$32.75 million payout despite a 48 per cent fall in profit and a A$426 million writeoff for Colonial.

* A payout of A$12.4 million and a A$1.5 million a year lifetime pension for former BHP Billiton chief executive Brian Gilbertson after only 27 weeks in the job.

* Former Southcorp boss Keith Lambert took home a A$4.4 million severance package after only 18 months in the job and a A$200 million plunge in profits.

* Lend Lease chief executive David Higgins was paid A$8 million - A$1.6 million paid to prevent his working for a rival - after a record loss of A$715 million.

"This is piracy in the 21st century," thundered Conroy.

There has been no shortage of other vast salary packages and payouts to inflame anger that has been steadily rising at Australia's gilded boardrooms.

The Commonwealth Bank's David Murray's salary rose more than 7 per cent last year to A$2.5 million, despite a 24 per cent slump in net profit; former Brambles boss Sir C.K. Chow earned more than A$4 million, including a base salary of A$2.7 million and A$227,000 performance bonuses despite almost A$5 billion being wiped from the company's market value during his time as chief executive.

The continuing woes of AMP have been another source of teeth grinding, with former chief executive Paul Batchelor walking away with A$2.1 million after presiding over the evaporation of A$869 million of the group's market value.

While former chairman Stan Wallis won accolades for declining a superannuation entitlement of A$1.6 million, Batchelor was reported to be thoroughly miffed his original bid for a A$20 million handshake was rejected.

Other AMP officers also profited from the shakeup that followed the group's nosedive: British managing director Tom Fraser gained a whopping A$6 million, and former AMP International managing director Tim Wade went home with A$3.2 million.

Nor have those remaining in jobs been shortchanged. Last November's annual review of executive salaries by the Australian Financial Review showed that the average chief executive pay packet had risen 7.3 per cent to A$1.95 million, presumably reflecting billionaire Kerry Packer's maxim that "if you want monkeys, pay peanuts".

At the very top of the scale were News Corp chief operating officer Peter Chernin on US$17.3 million a year, Rupert Murdoch on US$14.1 million, and Westfield Holding's Frank Lowy on A$13.4 million.

The same review also compared top salaries with those paid in 1984, when Australia's first salary review was published by the now defunct Australian Business. In today's dollars, the managing director of the Commonwealth Bank was paid A$213,305, of AMP A$325,000, of Qantas A$213,035, and of Telecom (now Telstra) A$213,305. The same jobs now pay, respectively, A$3.59 million, A$2 million, A$2.3 million and A$2.4 million.

A study by academics John Shields, Michael O'Donnell and John O'Brien of the Universities of Sydney, Canberra and New South Wales, for the NSW Labor Council, found that in 1992 executive remuneration for the 50 highest-paid chief executives was 22 times Australia's average weekly earnings. A decade late it was 74 times higher.

In addition to cash remuneration, the average value of the share options held by the top 100 executives was A$11.9 million. In 1992 it was A$160 million, with, the study said, "little evidence that the greater accent on share options and other long-term incentives has enhanced shareholder value".

The Australian Council of Social Services has also attacked the fact that golden handshakes and packages including shares and options attract much lower tax than ordinary income, and that companies can deduct executive payments from their tax bills.

Those who receive the money argue Packer's line that top money has to be paid for top performers. A report for the Hay Executive Reward Service published in Human Resources magazine, for example, says a 20 per cent rise in total remuneration last year for the chief executives of Australia's top companies - double the previous year's increase - was linked to performance.

"The increase was driven by most of the sample of business leaders hitting or exceeding agreed business targets, triggering performance-based payments," the report said. "More of executive pay is tied to incentive-based payments, so when CEOs hit their performance targets they reap the rewards."

Not so, according to the Labor Council study. Supported later by Australian Business Review research, the study found there was no link between high executive pay and company performance: "Indeed, the evidence is that as an executive's pay increases, the performance of the company deteriorates."

The study measured data from the AFR's annual salary review, covering Australia's largest 150 companies, against return on equity, changes in the share price, and the change in earnings per share.

It concluded that high executive pay levels coincided with a lower bottom line. In 2000-01, for example, executives of the 20 worst-performing companies, as measured by return on equity, received salaries 2.5 times higher than those of the 20 best performers.

While still defending executive pay levels against such complaints, business has nonetheless been stung by the outrage of Australians struggling to pay their mortgages and to feed, clothe and educate their children - especially as politicians on both sides of the fence have started sniffing blood.

Almost three years ago the Investment and Financial Services Association issued new guidelines for executive share and option schemes. Last November the Business Council of Australia released its own set of guidelines on executive remuneration, in part a reaction to increasing political pressure for new regulation.

This is coming anyway. The Australian Stock Exchange last March set out tight guidelines for evaluating and linking executives' performance to their pay packets, and the Government is introducing new laws that would give shareholders the right to vote on executives' salary packages at companies' annual meetings - although the board would not be bound by the vote.

If Labor wins this year's elections, boardrooms will feel a much deeper chill.

"If boards are not going to rein in corporate greed, we have to make them," Conroy told the party faithful. "If boards are not going to disclose the way they set the remuneration packages of their executives, we have to make them.

"If boards are not going to give shareholders a say on the size of those packages, we have to make them ... I'm here today to tell the boards of Australian companies: 'You will no longer be able to put your own interests above the interests of your shareholders and your employees'."

The big end of town has cause to tremble this year.