Eastwood's opinion then...SENIOR executives should be paid a set...

Eastwood's opinion then...


SENIOR executives should be paid a set cash salary rather than being given share packages that grossly inflated their incomes during a bull market, former Wesfarmers chairman Trevor Eastwood said yesterday.

Speaking to the Australian Institute of Company Directors in Melbourne, Mr Eastwood said the huge rise in executive pay packets in recent years had been due more to gains in the share market than managerial performance.

"The introduction of incentive payments around the world in the past 20 years has played a major role in the executive remuneration blowout," Mr Eastwood said.

The comments follow Wayne Swan's announcement of an inquiry into executive remuneration.

Mr Eastwood, who retired last year after 45 years at Wesfarmers -- the last six years as chairman -- suggested that senior executives be paid a fixed salary with little or no performance component, mainly in cash, with any scrip component to be purchased at market rates out of post-tax income.

"Good executives are driven more by their dedication and passion for their role than by financial carrots," he said.

Mr Eastwood, who in his final year at Wesfarmers presided over a board that signed off on the issue of up to 200,000 free company shares to chief executive Richard Goyder, said there was a good case to greatly reduce, or get rid of, incentives totally.

"Companies will then be able to judge more precisely salary increases against average earnings, inflation and long-term changes in the company's financial ranking," he said.

The former chairman also criticised remuneration consultants used by company boards to assess the amount to be paid to company bosses, saying they merely entrenched the rapid growth of salaries.

"Typically, they advise the level of remuneration for similar positions in a peer group of companies of a similar size, and express the range as upper, medium and lower quartile," he said.

"They make no effort to assess relative performance, leaving that to the company -- I have never seen or heard a CEO or board of directors who believe they have a below-average executive team."

Those companies paying below-average rates therefore generally increased their executive pay to keep up with the market, increasing average earnings and perpetuating the cycle. However, Mr Eastwood stopped short of saying that senior executives were generally overpaid.

"You have to pay all executives a competitive salary, and it's an international market at that level," he said, noting that Wesfarmers had recruited a number of senior staff from offshore to run its Coles supermarket division.


Great Australian blight


INVITED to speak at an Australian Institute of Company Directors lunch on the divisive topic of executive salaries, Trevor Eastwood was asked yesterday what he thought of proxy advisers and remuneration consultants.

"I could say they're a blight on the industry, but someone would quote me, so I won't say that," the former Wesfarmers chairman told the audience of about 200 -- including a handful of journalists.

Just as well he kept his mouth shut, then.

It's not surprising that Eastwood has a strong opinion on the matter. Wesfarmers was last year forced to clarify details of chief executive Richard Goyder's pay packet after a corporate governance advisory firm raised concerns about a lack of disclosure.

More than half the company's shareholders went on to vote against the company's remuneration report at the annual meeting after it refused to reveal the performance hurdles linked to the issue of up to 200,000 shares to the boss.