What do the explanations for remuneration strategies given by funds reveal?
The biggest clichés in super fund remuneration statements are that the trustees consult with independent external consultants to ensure pay is in line with industry standards and that incentive pay for CEOs and CIOs is based on key performance indicators (KPIs). Usually this is detailed over a couple of lines, with little more explanation given.
QSuper is an exception. Its tells how it carries out annual benchmarking against the Financial Industry Remuneration Group (FIRG) database for superannuation funds and organisations of “similar financial and asset size”. It targets a median salary among such comparative organisations and “up to the 75th percentile for Total Remuneration (TR) for outperformance”. And it has used Ernst and Young for independent advice and benchmarking.
Another revealing report comes from CareSuper, which gives its target salary position as the 50th percentile (median) of the all profit to members financial services sector, which includes credit unions as well as superannuation.
Some funds favour values over mathematical measures. UniSuper cites a desire to link an individual’s performance to the fund’s business strategy, goals, standards and values.
While Energy Super is guided by “simplicity, fairness, alignment with values, appropriate risk behaviour and transparency”.
Equip says it uses market salary data which has been de-identified for gender when conducting reviews for all staff to ensure that “pay equity is maintained within Equip’s workforce”.
The only fund that fully reveals its KPIs is AustralianSuper. It determines Mark Delaney’s bonus by whether the investment performance of AustralianSuper’s balanced option is positive, that its return is greater than inflation and that its performance is above that of the median balanced fund in the SuperRatings SR50 survey. The members of his investment team must also have an individual performance rating of at least ‘effective’ to qualify for a bonus. Delaney met all these hurdles so was awarded his maximum bonus payment of 60 per cent of his base pay.
Some have remarked on the relative ease and generosity of this plan. Though, other arrangements are potentially more generous. Sunsuper’s chief investment officer David Hartley is eligible for a bonus equivalent to 80 per cent of his base pay, however, he forfeited 52 per cent of this in 2014. Notably while the balanced option of AustralianSuper returned 13.88 per cent for 2013/14, Sunsuper’s balanced pool only returned 13.3 per cent. Sunsuper explains its bonuses are awarded to “reinforce a performance culture” in the fund, to protect the interests of beneficiaries, the “long term soundness of Sunsuper” and the risk management framework of the trustees.
Of course, yearly returns do not tell the whole story, especially for funds with more cautious strategies. QSuper’s balanced option returned only 12.87 per cent, but this is one of the least interesting aspects of the fund as most members are now in its individual cohorts launched in 2014. This is presumably why the fund’s chief investment officer Brad Holzberger was paid 90 per cent of his potential bonus and Rosemary Vilgan, the fund’s chief executive was paid 81.67 per cent.
However, the highest potential bonus is open to Michael Strachan, chief investment officer of Equipsuper at 120 per cent, he qualified for 110 per cent of this, thus earning more in bonus than in base pay for the last financial year. The balanced growth option for Equipsuper achieved 13.35 per cent in the last financial year.
Reflecting the more advanced performance pay culture in the private sector, corporate super bonus policies are usually more complicated, borrowing from their corporate sponsors general remuneration strategies. Notably the key performance indicators for Qantas Super are exhaustive. These cover the fund’s budget; net returns to members; member retention; enhancements to the value of the business operations; compliance with risk and compliance frameworks; management of staff; behaviour that demonstrates the Qantas values; corporate citizenship; internal and external audit findings; and incidents and breaches.
Telstra Super’s policies note the quantitative criteria of investment performance, costs containment, fund asset growth and staff engagement, while also noting a qualitative assessment of individual performance.
Most funds take a formal, compliance-like approach to disclosure of their director’s pay. A few though have gone further. AustralianSuper explains a pay rise for directors in 2014 was prompted by a review that acknowledged the rise in the number of board and committee meetings, the duration of the meetings, a growing complexity of the issues and a sharp rise in assets and members.
First State Super also acknowledged the extra work some of its board have undertaken by revealing the extra fees paid for special work carried out on the fund’s claims review committee to address volume of insurance claims in current period.
One of the most comprehensive explanations of director remuneration is provided by Caresuper as follows.
“Director remuneration is set using a total fee approach, which includes an annual base fee, a fee for meeting attendance for board and committee meetings and superannuation to reflect the time and commitment provided to the fund, and take into account the additional responsibilities of those who serve on and chair committees. The target level of income for a director is the average of the median fees paid by funds in the profit-to-members sector in the same bracket of asset size, contribution income and member numbers assuming attendance at 12 board meetings per year.”
For others there is the decision to disclose the other salaries that directors receive which might be construed as a conflict of interest. So the $12,840 that Angela Emslie receives as a director of Frontier Advisors is disclosed on the HESTA annual report, while the $17,424 that Tim Lyons is awarded for his role on the investment advisory board of Industry Funds Management is also disclosed, though this is paid to the Australian Council of Trade Unions in compensation for time taken away from Lyons’ full time role at the union.
The Retirement Benefits Fund board declares the $4000 paid to the single director of its board nominated to sit on the board of the Tasmanian Gateway Group of companies, including Hobart International Airport Pty, plus $1000 per meeting.
One notable disclosure by Qantas Super is that the independent chair, Anne Ward, is entitled to one free of charge long haul trip on Qantas operated services each calendar year.
Retail funds are different beasts to industry funds, and this is reflected in the ease of accessing information relating to remuneration of the CEO, CIO and chair. Complexity plays its part. NAB explains that “amongst retail funds there are inconsistencies in who is being deemed an Executive Officer – we have included a broad range of roles, others have not”. Aon Master Trust employees are paid by Aon and only take a nominal $40,000 from the trust they manage. Their duties as directors only form part of their overall job responsibilities, while AMP Superannuation Limited and Mercer Super Trust outsource the administration of funds to their respective parent companies.
In addition, banks can have several funds. AMP’s Michael Butler is chair of 10 funds: Wealth Personal Super and Pension Fund; Synergy; Retirement Plan; Super Directions Fund; National Mutual Pro-Super Fund; National Mutual Retirement Fund; First Quest Retirement; Super Savings Trust; AMP Eligible Roll Over Fund; and AMP Retirement Trust.
There is no place on AMP’s website that lists Butler’s total remuneration. When asked about this Butler said, “If I put my total remuneration on one fund’s annual report I would be misleading the members. They don’t pay all the compensation because the total cost is spread across every fund. As a consequence the amount paid by each fund is very modest.”
Butler’s remuneration for each fund is listed in their respective annual reports, but these reports are tucked away in a corner of the website. Once all have been found the remuneration for each fund needs to be extracted and then added together to give Butler’s total remuneration.
The information of CEO, CIO and chair remuneration is in the public domain but it takes no small amount of time to unravel.
Government funds can be equally opaque, with the information difficult or impossible to come by.
A line in Funds SA annual report sheds some light on why they don’t release these details. Three paragraphs after addressing staff remuneration policy a line states: “Funds SA is exempt from the disclosure requirements of the Freedom of Information Act 1991 – under Schedule 2 (n) – Exempt Agencies.” The closest they come is to list the bands of pay and the number of people in them, but not to say who is in which one.
ESS Super’s annual report follows the same format. In it there are 12 board members listed (13 if you include CEO Mr Mark Puli) and 8 deputies, but 15 people who received remuneration in 2014. As it is not listed whom is remunerated with what amount it is impossible to definitively say from the report why this inconsistency exists, let alone the remuneration of the chair of the trustees. Direct requests to ESS were able to clear some of this up. The response included which pay band CEO Puli and chair Simpson are in, but stopped short of giving an exact figure, making it, along with Fund SA, one of the least transparent funds.
For the full list of remuneration for chief executives, chief investment officers and chairs of the top 50 superannuation funds, see February’s edition of Investment Magazine.