Suncorp CEO forced to 'share' the wealth Simon O'Brien July 3, 2009 - 5:00AM
In a move lauded as a step in the right direction to end excessive executive salaries and risk taking, Suncorp has become the first Australian bank to stipulate that its CEO must buy shares in the company.
The Queensland insurer and bank announced on Wednesday it had appointed former British soldier Patrick Snowball as its new chief executive.
Mr Snowball's base salary will start at $2.1 million, however after starting work on September 1 he will also have to purchase $500,000 worth of Suncorp shares at his own expense.
If the former military man hits all his targets, the four-year deal could deliver him more than $27.5 million in cash and shares, plus some generous relocation expenses.
The Productivity Commission is currently investigating executive salaries after a request from the Federal Government in the wake of a backlash by unions.
In the US, the payment of huge bonuses for short-term decision-making was blamed, at least in part, for the financial crisis.
The Australian Shareholders Association, which has been outspoken on the need to reward long-term performance and ensure pay is linked to the returns executives generate, last night applauded Suncorp's decision.
"It will align his interests with that of shareholders and that can't be a bad thing," ASA chief executive Stuart Wilson said.
"It's a somewhat substantial amount so it's not a token measure and I think it will be welcomed by shareholders who are looking to see a recovery in the prospects of the company."
The Association of Superannuation Funds of Australia (ASFA) - which is the biggest institutional shareholder in Australia - agreed.
"What we want to see as an investor is a focus on long-term performance and long-term sustainability of a business," ASFA chief executive Pauline Vamos said.
But David Bell, chief executive of the Australian Bankers' Association, said the focus on bank CEOs' salaries was over-the-top.
"While there is a case that executive salaries in some US and UK financial institutions may have contributed to excessive risks, there is no evidence to suggest that this has been the case in Australia," he said.
"Australian banks are amongst the most secure in the world - Australia currently has four of only eight AA-rated banks in the world."
While Suncorp said it would not discuss the motivations behind Mr Snowball's package, a spokesman stated the board had taken into account the Australian financial regulator's current discussion paper, released on May 28, which included a proposal for "deferred short-term incentives" for CEOs.
"Equity related benefits for executives can be useful as performance rewards for the obvious reason that a personal stake in the regulated institution's equity can increase the incentives for an executive to preserve and enhance shareholder value," the APRA report says.
The last industry responses to the paper are expected by July 24, and APRA hopes to finalise its new guidelines by the end of the year.
Despite their approval for Suncorp's move, Ms Vamos and Mr Wilson were both quick to point out that equity interests were not a one-size-fits-all incentive for executives, and other options must be considered.
"You don't want to see it as an impediment to getting the right CEO," Mr Wilson said.
SUN Price at posting:
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