The Investment Magazine Salary Survey 2017 shows the chairs and executives of the country’s largest superannuation funds are being paid more than ever. Short term bonuses are increasingly common, but how these incentives promote long-term thinking is unclear.
More high-flyer in Australia’s not-for-profit superannuation sector are taking home million dollar salaries than ever before, as their pay packets are boosted by bonuses calculated against short-term targets.
Is this a positive reflection of the industry’s maturation, or a worrying signal? What does the trend mean in a sector that prides itself on a long-term approach to investing and has been pivotal in forcing local listed companies to better link executive salaries to long-term incentives? And why are the remuneration policies of some of the smallest super funds so generous, relative to those in place at their much larger and more sophisticated rivals?
These are just some of the questions raised by the key findings from the third-annual Investment Magazine Salary Survey. The survey shines a light on what the chairs, chief executives and chief investment officers of the country’s biggest not-for-profit investment funds get paid.
In previous years, the Investment Magazine Salary Survey has attempted to compare the pay deals at retail and not-for-profit super funds side by side. However, due to the complex and opaque business structures of the wealth-management arms of the big banks, it has proven difficult to make fair comparisons.
The remuneration policies and practices of the country’s biggest retail wealth managers will be examined in detail in an upcoming 2017 issue of Investment Magazine.
In the February issue, we report on what was uncovered by scrutinising the executive remuneration packages of the industry, corporate, and public-sector superannuation fund sector. All not-for-profit funds with more than $1 billion in assets under management were reviewed. The survey also included government-owned investment funds, such as the federal government’s Future Fund, NSW Treasury’s TCorp, and the Victorian Funds Management Corporation, bringing the total number of institutional investors included to 55. The survey covered the financial year ended June 30, 2016.
A surprising anomaly from the Investment Magazine Salary Survey 2017 was that the super fund that paid the most in chair fees was one of the smallest in the survey. For the second consecutive year, TWUSUPER, a $4 billion industry fund aligned with the Transport Workers Union, dished out more than any other super fund in chair fees. Its members paid $277,200 for David Galbally to chair the fund.
CEOs farewelled with golden handshakes
Atop the list of highly paid investment fund chief executives was the head of the $124 billion Future Fund, David Neal.
The sovereign fund does not disclose exactly what its executives get paid, reporting instead a wide band of possible total remuneration based on performance. For 2015-16, Neal had a reported base pay of $528,824 but was entitled to up to $1,329,155, including performance-linked bonuses.
The survey shows that executives at the biggest funds don’t necessarily get the plum deals. In fact, AustralianSuper chief executive Ian Silk didn’t even make the top five in pay, despite running the largest industry fund in the country, with more than $100 billion. Silk ranked seventh, with total remuneration of $798,196.
One of the best ways for not-for-profit super fund bosses to get a bumper pay deal last financial year was to quit.
The second highest-paid chief executive was former Mine Wealth + Wellbeing chief executive Bruce Watson, who stepped down from leading the $9 billion Newcastle-based industry fund for coalminers (formerly Auscoal) in February 2016.
Watson was farewelled with a $711,855 golden handshake which, combined with a mix of long- and short-term bonuses, inflated his $264,666 base pay to a total remuneration package worth $1,198,937.
That placed Watson’s earnings almost on par with Neal’s, despite the latter being responsible for a fund with roughly 14 times as much in assets under management.
The third highest-paid chief executive was another small super fund boss on her way out. Former Equip Super chief executive Danielle Press, who left Equip in June 2016 to take a new gig as chief executive of the Myer Family Trust, earned a total of $955,417 from the $8 billion default fund for Victorian electricity workers. Most of her pay came from bonuses.
Rounding out the top five chief executives were Scott Hartley, who earned $903,509 at $36 billion Queensland based industry fund Sunsuper, and Kevin O’Sullivan, who earned $846,919 at $55 billion university sector default fund UniSuper.
Click here for the PDF version of the CIO remuneration table
Rise of the rock-star CIO
While O’Sullivan may be one of the most handsomely paid super fund executives in the country, he pocketed less than UniSuper chief investment officer (CIO) John Pearce.
The investment chief more than doubled his base pay of $572,650, by earning $645,880 in short-term incentives, to bring his total pay to $1,331,690. This made Pearce the highest-paid super fund investment boss in Australia for the third year in a row.
UniSuper director and remuneration committee chair Sue Gould says Pearce’s package reflects high performance and the complexities of his role, which includes overseeing more than half of all funds under management in-house.
“We believe having a portion of our executive’s remuneration that is variable and aligned to performance is more appropriate than having their entire compensation package fixed [annually] and therefore not responsive to performance that benefits members,” Gould says. “We’ve structured our short-term incentive plans to incorporate medium- to longer-term performance measures in lieu of a formal LTI [long-term incentive] plan. This structure works for our business, as it helps us attract the best talent and enables them to clearly contribute to our strategic plan, which is ultimately about providing our members with greater retirement outcomes.”
Pearce’s pay remains the highest confirmed remuneration in the land among super fund investment chiefs but he was possibly out-earned by former Victorian Funds Management Corporation CIO Justin Pascoe.
The $51 billion state government investment fund did not disclose Pascoe’s actual pay, recording only that he was entitled to a base pay of $420,000 and total remuneration of up to $1,559,999, including incentives.
At the Future Fund, CIO Raphael Arndt and chief investment strategist Stephen Gilmore had identical pay bands of from $380,000 up to $1,329,155 – depending on a mix of incentives.
AustralianSuper’s Mark Delaney entered into the elite million-dollar club, after a short-term bonus bumped his total annual remuneration to $1,238,922.
Commonwealth Superannuation Corporation, the $37 billion public servants’ pension fund, paid CIO Alison Tarditi $1,190,351, nearly half of which she earned via short-term incentives.
Brad Holzberger took home a similar remuneration package for his role as CIO at QSuper, the $65 billion default fund for Queensland public servants. Holzberger earned $1,185,360, of which $485,453 was vested from short-term incentives.
Click here for the PDF version of the CEO remuneration table
Dangling carrots in easy reach
The use of short-term incentives [STIs] to encourage high performance is on its way to becoming mainstream. The 2017 Investment Magazine Pay Survey shows roughly half of super funds now have STIs built into their executive remuneration policies.
At the time of the inaugural Investment Magazine Pay Survey, three years ago, however, the board of Cbus Super was wrestling with the decision to abandon its long-held ban on performance payments.
In 2015, Cbus began implementing STIs for the most senior investment staff at the $34 billion industry fund for construction workers. Payouts from these STIs ballooned in the most recent financial year.
“We are cognisant of what other funds and the broader sector are doing with remuneration, and of the need to ensure we remain competitive in attracting and retaining talent,” Cbus executive manager, people and culture, Johanna Neilsen says.
Cbus executive manager investment management, Trish Donohue, received STIs worth $22,799, bringing her total remuneration to $472,842, while executive manager investment, Kristian Fok, received STIs worth $27,253, bringing his total remuneration to $587,006. Both Donohue and Fok had healthcare and travel allowances bundled into their remuneration package.
While the use of STIs is on the rise across the industry, only seven of the 55 funds surveyed incorporated long-term incentives (LTIs) into their remuneration structures for top executives. And only two of those seven funds had LTIs in place for both their chief executive and CIO: $9 billion Mine, Wealth + Wellbeing, and $16 billion VicSuper.
Mine, Wealth + Wellbeing CIO David Bell had a higher proportion of his pay linked to LTIs than anyone else in the sector. Almost one-third, $229,710 or 31.6 per cent, of Bell’s total remuneration came from LTIs, more than double his STIs, which were worth $104,160.
Attitudes around longer-term incentive structures are evolving across the industry.
“The best interests of our members are met by ensuring a focus on achieving sustainable long-term returns to build retirement savings,” First State Super chief executive Michael Dwyer says. “This requires a CIO with the right skills and knowledge to lead the investment team and achieve returns.”
In 2015-16, First State awarded its then-CIO Richard Brandweiner $114,000 in STIs and bonuses, plus $64,000 in LTIs, bringing his total remuneration to $792,800. However, many funds insist LTIs are too problematic to implement and enforce.
Hostplus chief executive David Elia thinks STIs are a better tool to drive a high-performing culture.
“It’s not that we haven’t looked at the question of long-term incentives, but the long term is made up of a whole series of short-term actions,” Elia says. “The board’s view is that it’s the short-term measurable behaviours that ultimately lead to long-term outcomes.”
The $20 billion hospitality industry fund paid Elia a total of $807,261 (including $190,504 in STIs) during 2015-16, making him the sixth highest paid fund chief executive.
Giving executives the option to defer their STIs is another trend slowly gaining popularity across the industry, at funds such as Sunsuper.
As a result of a review conducted with the help of external advisers in 2016, QSuper has scrapped LTIs in favour of deferred STIs.
QSuper chair Karl Morris declined to elaborate on how this deferral structure was expected to produce better long-term outcomes for members. Morris defended the change as based on independent advice and industry benchmarking, with a view to attracting and retaining high-quality talent.
LTIs preached but not practised
Deciding on appropriate targets to trigger incentives is not simple.
Investment performance is largely dictated by market performance, inflows are dictated by mandated contributions, and the market is largely saturated, so movement or the chance to grow other than through mergers is limited.
All of this makes it difficult to measure the impact an individual has on long-term performance.
Nevertheless, it’s notable that so few super fund investment chiefs have part of their pay linked to LTIs, given that the sector has been so vocal in pushing for more long-term focus in the remuneration policies of the listed companies in which they invest.
Deloitte partner Russell Mason, who specialises in consulting to both for-profit and not-for-profit super funds, thinks the industry needs to take its own medicine and ensure bonuses are linked to longer-term performance.
“If you are going to set the bar high for those companies you invest in, you have to do that internally,” Mason says. “While super funds are not commercial profit organisations, as far as I’m concerned, the members are the shareholders, so they should be treated accordingly.”
The trend towards more super funds using short-term bonuses to incentivise their executives is seen by some as an inevitable consequence of increased competition between not-for-profit and retail funds.
Stephen Moir, the founder and director of specialist recruitment firm for the accounting and finance industries Moir Group, says employers in not-for-profit super have a feel good factor that helps them attract talent.
“There is no question that executive pay rates are higher in the retail wealth management
sector than at the not-for-profit super funds,” Moir says. “But super funds tend to be very good at being able to attract people of a high calibre by appealing to their desire to feel a sense of purpose about what they do.”
He argues that before judging super funds too harshly for not being proactive about linking executives’ remuneration to LTIs, it’s important to remember that base pay in the sector is lower, and the use of overly generous short-term incentive structures less rampant.
“Senior positions at retail funds usually have a short-term incentive on top of the base salary, which can be worth up to 100 per cent extra, and is typically pretty easy to achieve,” Moir says.
While the use of incentives, in some form or another, is definitely on the rise across the not-for-profit super sector, many of its boards remain staunchly philosophically opposed to the practice.
Media Super, a $5 billion industry fund for journalists and entertainers, has such a board.
“Our staff are well remunerated to discharge their function without a specific incentive to outperform – they’re expected to be exemplary always,” Media Super chair Gerard Noonan says. “Bonuses and incentives have led to ridiculously skewed pay rates for many, many executives in corporate Australia. We’ve no intention of going there.”
Illustration: Rocco Fazzari
This article first appeared in the February print edition of Investment Magazine. To subscribe and have the magazine delivered CLICK HERE. To sign-up for our free regular email newsletters CLICK HERE.