Investing in ASX shares? Why CEO pay DOES matter when misaligned

Wonder who topped the highest-paid CEO table?

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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:

RankCompanyCEORealised pay
1Resmed CDI (ASX: RMD)Mick Farrell$47.58 million
2News Corporation CDI (ASX: NWS)Robert Thomson$41.53 million
3Goodman Group (ASX: GMG)Greg Goodman$27.34 million
4Macquarie Group Ltd (ASX: MQG)Shemara Wikramanayake$25.32 million
5BHP Group Ltd (ASX: BHP)Mike Henry$19.68 million
6Commonwealth Bank of Australia (ASX: CBA)Matt Comyn$10.52 million
7Rio Tinto Ltd (ASX: RIO)Jakob Stausholm$10.47 million
8Wesfarmers Ltd (ASX: WES)Rob Scott$9.57 million
9Amcor CDI (ASX: AMC)Ron Delia$9.33 million
10Sonic 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.

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Motley Fool contributor Kate Lee has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goodman Group, Macquarie Group, ResMed, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Amcor Plc, Macquarie Group, ResMed, and Wesfarmers. The Motley Fool Australia has recommended CSL, Goodman Group, and Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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