The difference of having a controlling shareholder

In Australia, a company’s management and to some extent even the board have a lot of discretion in their own compensation. One of the causes behind the GFC (Global Financial Crisis) is the excessive compensation arrangements given to managers that resulted in motivating them to take big risks in order to achieve them.  This practice is also common even to non-financial companies. Let’s hope the current changes in shareholder rights allowing them to vote on management compensation (although non-binding) will help curtain this practice.

Australian directors top the pay day

Clancy Yeates
Published: September 20, 2012 – 2:13PM

Australian company directors are paid the largest share of corporate profits in the Asia-Pacific region, collecting more than twice as much as directors in Japan, a new survey has found.

Directors’ remuneration soaks up almost 2 per cent of Australian company profits, the highest share among 12 Asian countries according to research by the broker CLSA. Directors in Japan receive 0.75 per cent of profits and directors in Hong Kong and Korea receive less than 1.5 per cent.

While the report said Australian governance standards were the best in the region, it also said executive and director pay tended to be more contentious in Western nations. This was because there were often more major shareholders sitting on boards in Asia, who tended to rein in pay.

“Directors’ remuneration is a much bigger issue in western markets where CEOs and senior management are given generous options and run the company without a significant controlling shareholder to rein in compensation,” the report said.

“In Asia, one of the benefits of family or individual-controlled companies is that compensation to senior executives is kept in check.”

Despite the high share of profits going to Australian directors, ASX-listed firms were ahead of the pack on most measures in the report.

Australia had the highest share of companies with an independent chairman, at more than 80 per cent. In Singapore, the survey found less than 60 per cent of companies had an independent chairman, while in Japan, the ratio was less than 30 per cent.

Overall, Australian companies had the highest average corporate governance rating of 64.2, compared with an Asia-wide average of 52.6.

The findings were based on research into 864 listed companies across Asia-Pacific markets.

Three Australian companies – Newcrest, Brambles and BHP Billiton – were among the top-20 stocks for corporate governance.

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