WIZARD Home Loan founder and star of the Nine Network’s The Apprentice, Mark Bouris, believes more needs to be done to curb executive salaries in the wake of spectacular company crashes.
With the GFC hitting every corner of the general population – superannuation, employment and wage reviews – the debate surrounding the remuneration of top executives roars on.
Why do boards continue to reward top brass for poor performance? Think ex-Qantas chief Geoff Dixon who was paid out around $11 million, Allco boss David Clarke, Babcock & Brown’s Phil Green and ABC Learning’s Eddy Groves.
“Regulatory environment comes in with a big stick after the problem occurs. It’s alright when it’s a free market in a rising tide, but they get it wrong when the tide changes direction,” says Bouris, speaking yesterday at the Finance Forum at Bond University’s Bondstock.
“Geoff Dixon from Qantas, I mean how do you assess his reward? Should it be over five to 10 years or how the company performed in the last 12 months? It needs to be looked at in context. There were some bad negotiations there.”
Head of the Australian arm of the US-based RiskMetrics Dean Paatsch describes it as ‘a joke’.
“He (Dixon) was the highest paid airline executive in the world and Qantas was the biggest underperformer. There needs to be exit arrangements. There’s a bizarre charade being played out on boards. In the case of Babcock & Brown, Phil Green went to the corporate knackery and he was driving the truck.”
The former Babcock & Brown supremo, who departed the company last year shortly before it imploded under a mountain of debt, has apparently dipped a toe back into the business world and is on the hunt for a new deal, according to southern media outlets.
The Australian Prudential Regulation Authority (APRA) has proposed a principles‑based approach by requiring boards of regulated institutions to have a remuneration policy that aligns remuneration arrangements with the long‑term ‘financial soundness of the institution’ and its risk management framework. APRA also proposes that regulated institutions have a Board Remuneration Committee, comprising only independent directors with the appropriate experience and expertise.
“Decisions relating to remuneration matters must be well founded and not influenced by conflicts of interest,” says APRA executive member John Trowbridge.
“The risks associated with remuneration arrangements must be managed as part of the institution’s risk management framework.”
Bouris, who sold Wizard Home Loans to GE Money in 2004 for $500 million is about to embark on a TV career as host of the Australian version of The Apprentice. His financial services company Yellow Brick Road, will offer the winner of The Apprentice a career starting salary of at least $100,000.
Accounts filed with ASIC show that Yellow Brick Road Group, which was restructured as a private company in April, posted a net loss of $2.5 million in the year ending June 2008 and had a net asset deficiency of $1.17 million on March 31 this year.
Bouris says continuous disclosure standards need to be met if remuneration is to be fairly assessed.
“It comes down to who has the best information, that’s who’s holding the parcel when the music stops,” says Bouris.
“GE had the best due diligence in the world, but no-one saw it (collapse) coming. The focus was trying to push up the share price. There needs to be continuous disclosure, a rolling commitment.”
Managing director of Hyperion Asset Management on the Gold Coast Manny Pohl, says in most cases shareholders ‘get what they pay for’.
“Incentive remuneration is extremely important. You get what you pay for. The problem is with the asymmetric, where the captains of companies are rewarded for performance but they don’t take any risk. There needs to be a balance. If you want a huge income there’s needs to be remuneration, but there also needs to be a link to the downside.”
Professor of finance at Bond University Barry Williams, says it’s a case of ‘the greater the risk, the greater the pay’, but “unfortunately, you can’t teach people ethics.”
APRA’s prudential requirements for remuneration will hold boards of regulated institutions accountable. It is expected that the final prudential standards and associated PPG will be released later this month and will be effective from January 1, 2010.
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