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10. 14th December 2004. Australian Financial Review: Emma Connors
Fewer at the top, but pay's better
It's getting lonely in the boardroom for chief executives in the technology sector as multinationals reduce the number of directors at their Australian subsidiaries. However, the top jobs seem to be better rewarded, with chief executives generally getting pay increases of about 5 per cent in the last year.
Four out of five companies surveyed by The Australian Financial Review have either reduced the number of directors on the boards of their Australian subsidiaries, or kept the numbers steady. Less than 20 per cent have increased board members. In the past, US-based directors have picked up fat pay cheques from their Australian operations by flying in every couple of months for board meetings.
However, accounts filed with the Australian Securities & Investments Commission by companies like Microsoft suggest there are less American accents heard in board meetings these days as corporate governance concerns make directorships less inviting. "Not many directors have been sued, but there is real fear that it could happen. Not long ago it was quite a benefit to say to someone, 'we will make you a director'. That's not true any longer," said Paul Riggs, principal at Mercer Human Resources Consulting. Microsoft Pty Limited dropped down from four directors to three in the year ending June 30, 2004. Total directors fees paid plunged from $2.7 million to $750,626. The company's three-member board now includes John Seethoff, Kevin Fay and Steve Vamos. Two directors received less than $10,000 for their services while the third, presumably managing director Steve Vamos, was paid between $750,000 and $760,000.
In contrast, in 2003 two of the then four Microsoft directors were paid more than $1 million. The accounts of companies that are not listed on the Australian Stock Exchange don't reveal individual remuneration but instead summarise director pay by noting income bands. Details on salaries and short-term and long-term incentives are not provided. Beth Jackson, principal at executive recruitment firm McLean Fearnett Jackson, said some companies had deliberately set out to reduce director numbers. "A smaller board does save money, but that hasn't been the main motivator. There is more of an emphasis now on contribution, on having really effective directors and some of the boards had got to a size where they were a bit unwieldy. "Sometimes people find the role and responsibility a little bit onerous. No one is interest in being on a board just for the sake of it now. Directors have a lot of fiduciary responsibilities now," Ms Jackson said.
Enterprise software supplier SAP Australia had the most richly remunerated board. It bucked the trend towards more modest director fees by paying out $1.94 million in the 12 months ending December 31, 2003, up from $1.17 million in 2002. According to company accounts filed in 2004, one SAP director was paid between $1.01 million and $1.02 million in both 2003 and 2002. In 2002, other SAP directors were paid, at most, $10,000.
Another director joined the ranks of the well-paid in 2003, taking home between $920,000 and $930,000. SAP Australia and New Zealand managing director, Geraldine McBride, joined the company in January 2003. Across the sector, pay increases for senior executives were greater than those for the lower ranks, according to research conducted by Mercer. In the 2003-04 financial year, the median salary package increase for senior executives in the computer services sector was 4.3 per cent; mid-ranking managers got 3.6 per cent. The ASIC accounts show that those who managed to secure a heftier increase than most included the highest paid director at Cisco Australia, where the top pay rose from $580,000 in the year ending July 2002, to $740,000 in the 12 months ending July 26, 2003. At Motorola, the highest paid director took home $860,000 in the year ending December 31, 2003, up from $680,000 in 2002. The bigger the company, the better the chance that executives working for multinationals will collect more than their counterparts at Australian-owned companies, Mercer research has shown. "The bigger and better known are trying to attract the very best so they have to least pay up to the local market rates. Quite often the multinational's global pay structure kicks in as well. "This is where globalisation kicks in: executives at particular levels are paid along similar structures, no matter where they work. The pay won't be identical, because it won't be the same currency, but it will be similar," Paul Riggs from Mercer said.
Oracle Corporation Australia was one of the few companies to confirm in its accounts that remuneration packages included salary, a performance based bonus and superannuation. The company noted long-term incentives including shares and options were also paid to executives.
