With the attention being given to former Qantas CEO Geoff Dixon's almost eleven million dollar cash payout after serving five months as CEO, it seems pertinent to examine the often large gap between the losses felt by shareholders vis-à-vis CEOs when a company falters, a matrix more commonly known as the "golden parachute".
Calculated as pay per day, Dixon's payout is more than the average annual salary of most Australians. Meanwhile, Qantas staff face another $1.5 billion in cost-cutting over a three year period, following last year’s 88 per cent fall in full-year net profit.
Alan Joyce, the current CEO, inherited the airline just as the global financial crisis struck and, as a result, received no short-term cash incentives (which were worth $1.2 million to him as the head of Jetstar in 2008), and a large reduction in the value of his share-based payment.
In contrast, it seems that Geoff Dixon and his chief financial officer Peter Gregg "timed their bailouts from the airline to perfection" (ABC News Online, "Dixon's $11m parachute from Qantas nosedive"), with Dixon's $1.86 million base salary boosted by $3 million in long-term benefits, $3.2 million in share-based payment, $1.7 million in annual leave payout and $657,000 in termination benefits. The total pay is the equivalent of almost ten per cent of the company's profit. Even the Australian Broadcasting Corporation's financial newscaster Alan Kohler devoted a moment to the story in between reporting the Dow Jones and NASDAQ.
Recently in the Australian Financial Review ("Investor spotlight on 'disgusting' big bonuses", Sep 19-20, p. 3), Patrick Durkin writes:
"After the worst year for investors in decades, superannuation funds and their money managers have told boards to expect greater scrutiny of the pament of bonuses based on 'underlying profit'--a figure that excludes the worst damage of the financial crissis and inflates executive payouts.
...
The local investors are likely to win support for tougher standards from the group of 20 leaders' summit in the us after European leaders agreed on Friday that the G20 should set binding rules on financial sector pay, backed up by sanctions.
The EU decision came amid reports that the US Federal Reserve was considering surprisingly far-reaching proposals to rein in risk taking at financial institutions. The Wall Street Journalreported that the Fed's plan would, for the first time, inject govenment regulators deep into renumeration decisions traditionally reserved for the bank boards, allowing it to reject policies it believes encourage bank employees to take too much risk.
After the EU leaders' meeting, the Fed backed reductions in pay when bank performance deteriorates and said governments should explore ways to limit bonuses to a proportion of total pay or a bank's profits or revenue."
Sydney-based Stockland's eco-friendly officesThe article goes on to cite a few examples:
"Stockland reported a record $1.8 billion loss this year but managing director Matthew Quinn received more than $1.2 million in bonuses based on the company's underlying profit of $631.4 million.
Ports and rail company Asciano reported a $244 million net loss, its share price fell from $3.47 to $1.34 during the year and total shareholder returns were negativce 49.52 per cent, but chief executive Mark Rowsthorn received a bonus of $741,678 based on an underlying profit of $655 million."
With the 2008/2009 collapse of numerous stockbroking firms and some major banks, the spotlight on reckless CEO behaviour has meant that today's CEO and brokerage stories talk not only about investor losses but the possibility of regulation--particularly in the banking sector. How these regulations are enacted could well be one of the biggest economic overhauls since the twentieth-century rise of Keynesian economics.
On the other hand, Robert Wade, a former World Bank economist and current Professor of Political Economy at the London School of Economics, voiced a more realistic interpretation of events on the ABC's Foreign Correspondent (22/09/2009). The program looked at the fate of Iceland in the wake of the global economic crisis, the first country to be hit by the credit crunch, and one of the hardest: in the first week of October, 2008, its entire banking sector collapsed.
Wade, who predicted the outcome two years earlier (and warned the government, who couldn't have cared less), said of the event on Foreign Correspondent:
"Very little has been done to address the deeper causes of the crisis in Iceland. And I think unfortunately, that is a microcosm of what's happening elsewhere. We are moving back quite rapidly in the United States and Britain, Wall Street and the city of London towards something like business as usual."
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