Former Mine Super CIO, David Bell

Imagine the scenario of a super fund executive enjoying a BBQ with friends, and the taboo subject of remuneration comes up. Would executive remuneration in superannuation pass the community expectations test?

Some may say ‘no, there is a problem’, once salaries are compared to those of their members and the general public. Others may say ‘yes, it’s ok’ when one lines up salaries against the broader financial services industry.

In a post-royal commission environment, does this latter line of reasoning remain valid given community views of the financial services sector?

An interesting exercise is to re-frame remuneration as a multiple of average Australian earnings – there are many 3 times, 5 times, and 10 times in the super industry. This is far from the extremes of corporate America where last year Forbes reported that the average corporate CEO of an S&P 500 Index firm earned 362 times what their rank-and-file earns!

Because of the unique industry structure of superannuation it can be difficult to identify its true
value-add: (1) the industry is underpinned by the superannuation guarantee,so the underlying asset base is largely mandated by law; (2) innovation, for a variety of reasons, is slow; and (3) the size of active investment management calls, which can make a huge difference to retirement outcomes, is increasingly being constrained by the practice of peer grouping.

Recent reviews have suggested that a set of agency issues exist which means we have too many funds. A range of models have been promoted including the Productivity Commission’s ‘best in show’ and Peter Costello’s suggestion of a government default fund.

The broader academic literature on remuneration and executive performance is mixed. There are noted problems with how performance is attributed (good performance driven by the broader market environment may be attributed to executive performance, and vice versa).

While overall pay appears to be positively linked with performance, the literature also suggests that workers respond to monetary incentives for less interesting, more routine tasks, and there was no (or even a negative) relationship between remuneration and motivation to perform interesting, satisfying tasks.

Academic studies have also identified that financial incentives can lead to undesirable behaviours by executives,a result that may resonate with the findings of the royal commission. I find executive remuneration in superannuation a fascinating topic, both personally and academically.

Was I part of a problem? I felt that ‘yes’, I was. But what is an appropriate maximum remuneration for an executive?

I considered how hard I worked and the stress of the role, the hours I worked, my education and experience, and the scope to add value through my actions. I should probably have accounted for the knowledge access, privilege and prestige of the role, but I didn’t.

On this basis I self-determined a maximum multiple of AWOTE (a measure of average earnings amongst Australians) which I thought appropriate. I was permitted to cap my take home remuneration to this level (by returning bonus entitlements). My personal experiment (which will inform my academic research) was consistent with existing academic literature: I felt no less desire to work hard and contribute to delivering member outcomes.

The ‘BBQ test’ may be a useful frame for reflecting on community expectations in an industry under great scrutiny.

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