Two Sydneysiders made their fortune on the back of short-term loans to cash-strapped customers. JobKeeper helped. Callum Foote reports on executive pay and public subsidies.
The Morrison government developed JobKeeper to save the economy at the height of the Covid lockdowns. MWM has examined the side-effects of the cash splash.
A new report has revealed the extraordinary CEO pay in Australia for FY2021 with the ghost of JobKeeper giving a helping hand to the quarter-billion windfall Afterpay CEOs Anthony Eisen and Nick Molnar were granted.
The report commissioned by the Australian Council of Superannuation Investors and prepared by Australian governance advisory firm Ownership Matters has been running since 2014 and analyses trends in ASX 200 CEO pay over the financial year.
The headline grabber for this report is the staggering $246 million payout received by the CEOs of Afterpay, an Australian financial technology company popular for its buy-now, pay-later service. At roughly a quarter of Afterpay’s revenue, that’s a big win for Molnar and Eisen, especially as Afterpay has been a heavy loss-maker.
The pair had only a guaranteed income of $3.3 million between them but managed to earn their quarter billion by exercising the $1 options they had over 1.5 million shares when the company’s share price reached $90 in August 2020. That is 10 times what it had been in March that year. Afterpay’s share price would ultimately reach a peak of almost $160 last financial year before being bought by US company Block Inc. last February.
Impact of JobKeeper
The skyrocketing share price which led to this record level CEO pay was aided significantly by the Morrison government’s JobKeeper scheme. A survey of 1000 buy-now, pay-later users in October 2020, months after Eisen and Molnar exercised their options, revealed that JobKeeper had boosted the uptake of their service.
In its survey, UBS found that buy-now, pay-later users were 270% more likely to be on JobKeeper than non-users. UBS also found that 60% of the respondents on JobKeeper and 40% of those on JobSeeker believe they would have defaulted on their repayments had it not been for the government payments.
The report revealed that Crown Casino awarded $4.85 million to its former CEO Ken Barton who departed after being found not fit to hold a position of authority at a licensed casino. This is after receiving and not repaying just shy of $200 million in JobKeeper payments that same year.
CEO pay compared to average Australian
It’s no surprise that CEOs are paid far higher than the average Australian, 80 times higher in fact for CEOs of ASX100 companies and roughly half that for ASX101-200 CEOs.
What may also not be a surprise is that there is “strong evidence that CEO pay outcomes are not wholly explained by share price returns”, meaning that there are numerous other factors that determine the level of CEO compensation apart from their performance.
Report author Martin Lawrence says that “the company’s size plays a huge role on pay outcomes along with the industry as many industries have different approaches. The media and casino industries, for example, have very high base salaries and always have. Those factors alongside individual executives and boards determine the size of CEO pay outcomes.”
What Lawrence finds interesting is the slowing down of pay increases for ASX100 CEOs compared with those from the ASX101-200.
“However, if the Afterpay effect is excluded from the ASX100 sample, average realised CEO pay was flat in FY21, rising less than ordinary earnings,” the report reads.
Lawrence believes that this is the result of “far less scrutiny on companies outside the ASX100 permitting those CEOs to keep increasing their pay”.
CEO bonuses back after pandemic
Other trends revealed by the ACSI reports are that all those bonuses that CEOs graciously forgone during the pandemic are now being slowly repaid.
CEO bonuses are capped in Australia at around $2.5 million depending on the company, and the median bonus for an ASX100 CEO as a proportion of the maximum possible has hovered around 70% of that since the report has been released.
However, reported pay for ASX100 has “recovered to pre-COVID levels in FY21 as annual bonuses reappeared and the significant reversal of previously accrued equity incentive expenses at many companies in FY20 did not recur”.
Last financial year, bonuses rose from the record low of 31% in 2020 to a record high of 76.7%.
Lawrence believes that time will tell whether these CEOs manage to scrape back the full amount they forwent during the pandemic meaning those bonuses weren’t given up, merely ‘‘delayed’’.
Business whispers: how Treasurer Josh Frydenberg squandered $40bn on JobKeeper
Callum Foote was a reporter for Michael West Media for four years.