The second annual Investment Magazine remuneration study of the largest Australian institutional investors has revealed who received the largest increase in total remuneration, who achieved the biggest bonus and which super funds had the greatest differences between chief executive and chief investment officer pay.
Investment Magazine complied the tables by searching publically available data in annual reports, remuneration disclosure documents and websites. Some organisations provided the information openly and easily – QSuper, AustralianSuper, NGS Super, Legal Super, GESB, MTAA Super and Energy Super are all worth mentioning, as the information was easily accessed in the annual reports to members – while other organisations buried the information in the recesses of their websites and/or presented it in obscure ways.
For the purposes of the survey, total remuneration was considered rather than base pay, as salary packages are beginning to increase in complexity. Total remuneration allows everyone to see how much money went from an institutional investor to an individual’s pocket, no matter how complex the arrangements.
Bonuses, both long-term and short-term, were another area examined, because of the ongoing debate around how executives should be incentivised and the behaviour this elicits.
Interestingly, this showed that the 10 highest-earning chief investment officers all had a short-term incentive as part of their remuneration, while only six of the 10 highest-paid chief executives received the same.
“Five years ago you could have counted the number of funds doing [offering bonuses] without taking your socks off – in fact, with one hand in your pocket,” observes Jonathan Finlay, head of board and executive compensation at Willis Towers Watson Australia.
He adds while super funds have a different ethos to business, with good people working hard who until recently had not asked for incentives, this trend towards performance pay is a result of them not wanting to be left behind compared to pay structures in listed companies.
What some may finding surprising, given the superannuation industry’s unceasing talk about having a long-term focus, is that only eight out of the 28 super funds who used bonuses had long-term incentives in their remuneration structures.
These eight were QSuper, StatePlus, Mine Wealth + Wellbeing, Equip Super, First State Super, NGS Super, Commonwealth Bank Super and NAB Group Superannuation.
Eva Scheerlinck, executive manager of governance and stewardship at the Australian Institute of Superannuation Trustees, said long-term incentives can be difficult to design, because boards review and adapt investment strategies to changing circumstance in the market.
“It’s a bit of an art form, but that long-termism, should really be a focus for performance pay,” says Scheerlinck.
She adds with variable remuneration funds should consider organisational performance as a whole; the personal performance of the individual; and, if applicable, the investment performance of particular asset classes.
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John Pearce, chief investment officer of UniSuper, has a significant portion of his pay linked to performance, equivalent to 97.6 per cent of his base salary and super package in the financial year 2014/15.
According to a spokesperson for the super fund, the bonus size reflects Pearce’s engagement in a number of in-house functions not performed by, or to the same extent, as most other super funds. Not only does Pearce have overall responsibility for the investment of UniSuper’s assets of around $50 billion, he also has direct responsibility of around $25 billion of internally managed funds.
Sue Gould, chair of UniSuper’s remuneration committee, says: “The chief investment officer’s remuneration reflects this extra responsibility. In addition, there are no payments to any outsourced providers to manage that $25 billion, as would be the case with other funds that outsource this function. The chief investment officer’s bonus is heavily dependent on the achievement of quantitative goals over a period of several years.”
This structure, coupled with his success (the balanced option at UniSuper returned 11.0 per cent for the 2014/15 financial year), has seen him receive the biggest bonus for a chief investment officer with a payout of $653,586.
Meanwhile, Rosemary Vilgan received the biggest bonus for a chief executive with a payout of $420,923 making up 37.2 per cent of her total remuneration package of $1.13 million. This helped her to be the highest paid chief executive.
The rationale given for Vilgan receiving this high salary was that she oversees the many arms to the super fund, including a wholly-owned financial advice business, mortgage broking services and self-underwritten insurance products, as well as tailored administration platforms and systems which are managed end-to-end.
Unlike UniSuper and QSuper, Cbus, one of Australia’s oldest and largest industry superannuation funds, has historically not used individual performance based pay as part of its approach to remuneration strategy. But this seems to be shifting.
David Atkin, chief executive of the fund, said: “We have introduced a small performance based component to the executive team, based on the achievement of organisational objectives.
“Alongside the transformation and growth of the fund, it is our intention to conduct a broad remuneration review to again test the merits of introducing some form of performance based remuneration where it is deemed appropriate,” Atkin says.
However, performance pay is still not universal.
Twenty-three out of the 50 institutional investors that precisely listed chief executive pay, and 22 out of the 43 that precisely listed chief investment officer pay, including Cbus, did not provide any short-term incentives or long-term incentives in the financial year 2014/15.
Another consideration is if incentives are introduced payroll cost will increase by around 15 to 30 per cent, according to Jonathan Finlay, head of board and executive compensation at Willis Towers Watson Australia.
“Companies have found that the true cost of bonus pay is like both an iceberg and a virus. The iceberg is the increased HR costs and time overheads from the necessary performance management and measurement systems, added to the visible payroll cost. It’s a virus because once you have incentive pay in an organisation it’s very difficult and expensive to get rid of it,” Finlay says.
The mean rise in total remuneration for the 36 chief executives (or those performing equivalent functions) that served a full year in both 2013/14 and 2014/15 and disclosed precise remuneration figures was 6.87 per cent. The median was 6.01 per cent, and the range went from -3.42 per cent (Peter Lambert, chief executive at Local Government Super) to 21.73 per cent (Brett Grant, fund sectary at Rio Tinto Staff Super).
The greatest increase in total remuneration of a chief executive at a large super fund went to Ian Silk, chief executive of AustralianSuper, who received 15.44 per cent more for the 2014/15 financial year than he did for 2013/14.
The rise goes some way to adjusting Silk’s position from 2013/14 when his total remuneration of $697,670 was low relative to peers of large funds in the industry, particularly if funds under management (FUM) are considered. AustralianSuper has $92 billion in FUM while its nearest competitor, QSuper, has $60 billion.
Looking into the structure further, Silk’s fixed remuneration (salary and superannuation) in 2013/14 was $648,402 rising by 10 per cent to $713,242 in 2014/15. His total remuneration package of $805,372 included a non-monetary benefit of $17,786 for motor vehicle parking and the nominal values of untaken annual and long service leave.
Elsewhere, the changing of the guard at HESTA meant the fund spent more than $1.18 million on chief executives in 2014/15. For her eight months of service to February 27, 2015, HESTA’s former chief executive Anne-Marie Corboy received a remuneration of just under a $1 million ($999,196). Her successor, Debbie Blakey, received $185,192 for the remaining four months of the financial year.
Differences in pay
This also contributed to HESTA having the largest difference between the pay it awarded to the position of chief executive and the position of chief investment officer. The difference between the two positions was $634,930.
UniSuper was at the other end of the spectrum with its chief investment officer, John Pearce, out-earning the chief executive by $529,331.
Out of the 37 super funds that clearly disclosed the remuneration of both the chief executive officers and chief investment officers, eight chief investment officers out-earned their chief executives. These were: Rio Tinto Staff Super, QSuper, First State Super, Equip Super, AustralianSuper, Telstra Super, Commonwealth Super Corporation and UniSuper.
Non-monetary benefit to chairs
There are quirks in the pay structures of chairs too. The chairs of Telstra Super, Qantas Super, Catholic Super and Energy Super all received a non-monetary bonus, though there were large differences in the amount.
Robert Hendricks of Energy Super and Peter Bugden of Catholic Super respectively received $2,624 and $6,879.
In contrast, Anne Ward of Qantas received $67,746 for a long-haul trip for her whole family, while David Leggo of Telstra received $41,037 for “motor vehicle lease”.
War for talent
If anything the level of remuneration for directors and chairs is quite modest compared to elsewhere in the financial services industry, says David Coogan, partner at PwC.
“I think there are a number of funds that should seriously be considering STIs [short term incentives] and LTIs [long term incentives] for the people within their business because there is going to continue to be a war for talent over time. You can structure some of these schemes to help retain people,” Coogan says.
A suggestion, made by Russel Mason, partner of consulting at Deloitte, was for super funds to adopt the practices of the rest of the financial services industry and look at total remuneration, not just salary in isolation.
“Most now allow some degree of salary packaging, because senior executives in these organisation would expect the flexibility, especially as some funds are hiring from the retail sector, so to have the right packing is important,” Mason says.
“It doesn’t mean paying people more, it means introducing that degree of flexibility into the package.”
He adds that if super funds are going to start hiring heavily form the retail sector, which a number have already begun to do, then packages need to be structured to attract those sort of people.
Given the growth in the industry, and what will be a war for talent, Justine Turnbull, partner at the legal practice Seyfarth Shaw, believes this type of move towards performance pay will be unavoidable.
“There’s mon-monetary benefits in those environments and the funds are seen as nice places to work, and we shouldn’t undervalue that, but if we want to try and drive top performance there has to be an at risk component of pay,” Turnbull says.