ASA believes that the CEO should have the largest component of at risk pay amongst the Key Management Personnel. Salaries may rise with market capitalisation, but the financial performance, size, competitiveness and complexity of a company’s operations should be a key determinant.
We oppose short-term incentive payments for CEOs. Where they do feature in a three-tiered pay structure, then the STI opportunity should not exceed base pay.
ASA's voting guidelines state that the maximum annual total pay for any Australian-based CEO should be related to performance. As a general rule, the adequacy of performance is assessed by comparative analysis relative to prior years, industry, the type of business environment and exogenous macroeconomic factors.
The overall balance of an executive package will differ from company to company and ASA monitors take into account company specific arrangements when determining how to vote on a remuneration report.
Whilst many companies opt for a one third equal split between fixed, STI and LTI, ASA's preference is for companies to minimise or even eliminate the STI for the CEO where the split should be up to 50% fixed, with a majority at risk, primarily through the LTI.