The debate about the increasing size of executive remuneration has raged in the wake of the Hayne royal Commission. At the most recent annual meeting season shareholders showed their anger about the multimillion dollar pay packets handed to big bank chief executives by registering big protest votes.
While top brass employed in the not-for-profit superannuation sector are not remunerated to the levels that those in the private sector are – the average ASX100 CEO gets around $4.36 million per year – the 2019 Investment Magazine Super Fund Salary Survey reveals there is still no magic formula when it comes to working out super executive salaries.
Visit the full 2019 Investment Magazine Super Fund Salary Survey here for searchable results of the top superannuation pay packets.
The survey data shows wide variety between pay packages making comparison across the sector difficult, however funds that Investment Magazine spoke had robust rationales behind their remuneration decisions.
Michael Swinsburg, a managing partner at global executive search firm Alexander Hughes Asia, says one reason for this is that running a super fund is getting increasingly challenging.
“The big funds are developing more complex client service offerings, internalising investment teams, building their own financial advisory units, and increasing offerings so they are looking more like a large wealth management business,” he says.
“The remuneration will need to reflect the complexity and risks associated with this and the need to attract and retain the right senior talented executives who can run today’s business and tomorrow’s in this hyper competitive environment.”
With this in mind, he warns that scrutiny around how much CIOs, CEOs and chairs are paid will only intensify.
“As the sector grows we can expect ever more scrutiny from the Productivity Commission and future reviews. It is only going to get hotter in the kitchens of super funds.”
Now in its fifth year, the survey includes remuneration for non-profit licensed super funds for the financial year ended June 30, 2018. It also encompasses the country’s largest pension funds and the Future Fund, but does not include bank-owned or other for-profit super funds.
Short term incentives popular
The survey reveals that variable pay and performance-linked pay is now a feature of the remuneration structures for many funds.
Long term incentives (please see methodology for further explanation) were paid by only four funds – CBA Group Super, Equip Super, Mine Super and First State Super – while short-term incentives were far more popular, with 22 chief executives and 22 CIOs receiving these as part of their total remuneration package.
In the case of CBA Group Super, chief executive Doug Carmichael has a $75,505 “share-based payment” listed according to its annual report, which is referred to as “deferred rights (at risk)”.
“The structure of remuneration arrangements for senior managers consists of the following components: (i) fixed remuneration, and (ii) short-term variable remuneration (STVR) at risk,” said CBA Group Super in its 2018 Remuneration of Executive Officers document.
“The ‘at risk’ component is based on performance against key financial and non-financial measures across performance categories of customer, people, financial, and business and strategic initiatives”.
For FY18 Carmichael’s LTI includes “the accounting expense of the previous years’ STVR deferred awards. For FY18, this includes the expense of the FY15, FY16 and FY17 deferred STVR awards as applicable to each senior manager”.
Cbus CIO Kristian Fok, who has a base salary of $560,193 with an STI of $81,797, says the fund last year introduced a “cautious and conservative variable pay program” for the $48 billion fund’s executive team and some of its senior investment staff.
“The change was introduced to better align performance with outcomes for key staff. Additionally, as Cbus has begun its internal management of several investment strategies, the change allows us to better align with the employment for investment talent,” he says.
On bonuses, Fok says the board reserves the right to withhold payment of these “at their discretion”.
This includes “unpaid amounts from previous years that have been deferred for future payment. Examples of these types of situations where the board may exercise this right would include material breaches of risk controls, and misconduct”.
The bulkiest pay packets
Last year, Fok announced that the fund for construction and building industry was set to bring up to 40 per cent of its asset management in-house, with Cbus now rewarding investment staff for exhibiting behaviours which align with member-first thinking, longer term investing and whole-of-portfolio outcomes.
The complexity related to in-housing of investment functions is very much reflected in the salaries received by CIOs in this year’s survey. Swinsburg says “a more diverse skill set is required for a CIO to run their own fund’s money and lead a team of internal asset managers”.
UniSuper CIO John Pearce, AustralianSuper CIO Mark Delaney and Commonwealth Superannuation Corporation CIO Alison Tarditi are the most highly paid members in the $2.8 trillion super sector according to the survey, which uses publically available annual reports as its source material.
Pearce is again the most highly paid executive, taking home almost $1.6 million for the year to June 30, a slight increase on the previous year’s $1.4 million. In 2018, his package included a base salary of $589,744 with short-term incentives of nearly $882,924, and super of a little over $100,000. Delaney received a base salary of $711,350 with an STI of $736,350, while Tarditi had a base salary of $627,001 and STI of $614,295.
Julie Watkins, UniSuper’s executive manager for people, told Investment Magazine that Pearce’s pay reflects the “significant and direct influence on fund performance and results” he has.
“UniSuper’s investment team performs a number of in-house functions not performed by, or to the same extent as, many other super funds which tend to outsource more. The nature of the investment function is complex relative to other funds with in-house management strategies,” she says.
“Not only does the CIO have overall responsibility for investment of UniSuper’s assets of around $70+ billion, he has direct management responsibility of funds managed internally, which is expected to hit $50 billion this year.”
UniSuper’s in-house investment function comprises defined benefit and defined contribution options, fundamental and quantitative strategies, as well as global and Australian portfolios across a range of asset classes.
“The CIO’s remuneration reflects this extra responsibility. In addition, there are no payments to any outsourced providers to manage the in-house funds and fee savings for members are in the tens of millions per annum. The CIO’s bonus is heavily dependent on the achievement of quantitative goals over a period of several years,” Watkins says.
With the average salary for a CIO at a not-for-profit fund sitting at almost $480,000, some experts question what the right level of pay is for executives concerned solely with member outcomes. However, there is also an acknowledgement that funds need to be able to employ the best talent to achieve the best results for their members.