Aussie CEOs Are Misleading Shareholders, According to ISS

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By Athena Yenko | March 20, 2014 1:54 PM EST

CEOs of Australia's top companies are misleading shareholders, an ISS report suggests.

According to a recent report from International Social Service (ISS), big-wigs of the biggest companies in Australia are being compensated in excess of what they divulge through their companies' annual reports. With this, share plans are discreetly augmenting their take-home pay by more than $1 million.

ISS explained that as an end result of large companies pre-planning of long-term bonuses for the CEOs, there are "materially higher payouts" given to higher-ups than what was indicated by the "sticker price" of their award.

"In some cases, the aggregate value of awards at the point of vesting are worth millions of dollars more than initially intended. This has the potential to mislead shareholders," ISS said.

As a rule of thumb, shareholders have their say on executive's compensation as being decided through votes during annual general meeting. However, ISS noted that companies compute their long-term incentive schemes with such convolution that shareholders lost it somewhere along the way.

ISS said that CEOs from eight companies within the ASX top 50 were compensated an excess of $1million within a three-year span because of how long-term bonuses were calculated.

 "This is primarily driven by the predetermined modelling assumptions applied to valuing awards on the date of grant,'' ISS said.

The report mentioned former BHP Billiton boss Marius Kloppers and ANZ Chief Executive Mike Smith as two of the most benefited CEOs of the pre-planning scheme. According to ISS, they were paid $9 million and $3.4 million in excess within a five-year period, more than what their targeted pays.

In line with the 2010 Productivity Commission's policy to disclose the actual value of executive bonuses during compensation reports for shareholders, companies are expected to observe transparency. There had also been a call to change the pre-planning scheme of long term bonuses in order to reflect actual amount of shares.

Transparency aside, boards should address the issue without having to regulate the amount of compensation that CEOs receive, said John Egan, a principal at Egan Associates and Fellow at the Australian Institute of Company Directors.

 "If you want to pay executives fair value... tell shareholders, don't hide it in accounting,'' he said.

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