Investing legend Charlie Munger, Warren Buffett's long-term business partner, is famous for his witty and wise quotes. He once said, "Show me the incentive, and I will show you the outcome."
This quote emphasises the importance of aligning incentives with desired outcomes, highlighting how compensation structures can drive behaviour and decisions.
High pay for management can be a powerful motivational tool when wisely designed to link to business performance. However, it may be a yellow flag for shareholders when there's a disconnect between compensation and business results.
With this in mind, let's examine the S&P/ASX 200 Index (ASX: XJO) CEO compensation as reflected in the FY23 financial reports.
ASX 200 CEO pay table for FY23
Every July, the Australian Council of Superannuation Investors (ACSI) publishes an annual survey of CEO pay in Australia's largest listed companies based on the previous financial year's data.
Some of the interesting findings from ACSI's 2024 report, released on Friday, include:
- The median CEO total realised pay for ASX 100 companies fell from $3.93 million to $3.87 million, which is the lowest median in the 10 years.
- In FY23, ASX 100 CEOs received a bonus at 66.3% of the maximum, while for the ASX 101-200 companies, the median bonus outcome was 60.7% of the maximum.
- CEOs in companies listed on ASX but based in the US tend to have higher realised pay outcomes.
- The highest termination payment in FY23 was $7.61 million for former CSL Ltd (ASX: CSL) CEO Paul Perreault.
The top 10 highest-paid CEOs are as follows:
| Rank | Company | CEO | Realised pay |
| 1 | Resmed CDI (ASX: RMD) | Mick Farrell | $47.58 million |
| 2 | News Corporation CDI (ASX: NWS) | Robert Thomson | $41.53 million |
| 3 | Goodman Group (ASX: GMG) | Greg Goodman | $27.34 million |
| 4 | Macquarie Group Ltd (ASX: MQG) | Shemara Wikramanayake | $25.32 million |
| 5 | BHP Group Ltd (ASX: BHP) | Mike Henry | $19.68 million |
| 6 | Commonwealth Bank of Australia (ASX: CBA) | Matt Comyn | $10.52 million |
| 7 | Rio Tinto Ltd (ASX: RIO) | Jakob Stausholm | $10.47 million |
| 8 | Wesfarmers Ltd (ASX: WES) | Rob Scott | $9.57 million |
| 9 | Amcor CDI (ASX: AMC) | Ron Delia | $9.33 million |
| 10 | Sonic Healthcare Ltd (ASX: SHL) | Colin Goldschmidt | $8.35 million |
Greg Goodman of Goodman Group remains the highest-paid domestic CEO with a realised pay of $27.34 million. Macquarie's Shemara Wikramanayake was in second place, with a realised pay of $25.32 million.
Why should ASX share investors care about CEO pay?
In recent years, the topic of CEO compensation has increasingly come under scrutiny. We often hear about CEOs earning exorbitant salaries and bonuses, disconnected from the company's performance or the shareholders return.
This misalignment between management pay and company outcomes is especially important for minority shareholders like us. It can create a disconnect between the interests of the executives and those of the stakeholders they are meant to serve. This misalignment can result in decisions that prioritise short-term gains over long-term sustainability, potentially jeopardising the company's future.
The key is whether the incentive structure is objective and well-aligned with business performance.
One of the best ways to avoid these issues is to invest in companies with high insider ownership. For larger companies with widespread share ownership, it's often beneficial to review the management remuneration section in the annual reports.
