Excessive pay practices coming under fire

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Remember when your Mum told you, “You can’t have your cake and eat it too”? Well, that’s not how it works amongst much of corporate Australia. Chief Executive Officers (CEOs) regularly get paid salaries completely out of line with their performance, not to mention out of line with the rest of the Australian work force. It is not uncommon for the CEO of a publicly listed company to be earning in one hour what the average worker takes all week to earn.

In my opinion, for far too long many fund managers have neglected their responsibility as the owner’s representative of a company to vote their shares at Annual General Meetings (AGMs) and to question management about remuneration policies. It is great to see financial service provider AMP (AMP.AX), as one of the giants of the industry, not shunning its responsibility.

On 15 January 2013, AMP released its Corporate Governance Report. The following sentence from the opening page of the report sums things up nicely: “By analysing the pay structures of chief executives and directors, investors can gain considerable insights about not only who but also what a company values.”

Of the companies owned in AMP Capital portfolios, copper explorer CuDeco Ltd (CDU.AX) would appear to have been the worst offender. Not only did AMP vote against the CuDeco Remuneration report, but it also voted in favour of a board spill. Other companies of concern to AMP included oil and gas explorer Linc Energy (LNC.AX), diversified engineering firm UGL Limited (UGL.AX), and taxi payment provider Cabcharge (CAB.AX). In each case AMP voted against the adoption of the remuneration report, which could have potentially received a second strike.

There were a number of other companies also singled out for less than ideal remuneration practices. A full list is contained within the report, but included NextDC Ltd (NXT.AX) and M2 Telecommunications (MTU.AX), amongst others.

Foolish takeaway

At The Motley Fool we like to invest in companies run by managers that will act in the shareholders’ interest. While outstanding performance deserves to be rewarded, watching closely for managers and boards who look to be more interested in lining their own pockets than the pockets of shareholders is one way to hopefully avoid investing in a business which will suffer at the hands of greedy, value-destroying managers.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur owns shares in AMP and Cabcharge.

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