IAG were this week forced to defend the remuneration packages of its senior management after a shareholder branded them “outrageous” at the annual general meeting.
IAG CEO and MD Mike Wilkins received a total actual remuneration of $6.1m for the year end 30 June 2013, while chief risk officer Justin Breheney pocketed $4.9m. Their pay packets include fixed remuneration, leave accruals, termination payments, cash STI paid and other benefits.
The same report states that “modest” increases in fixed remuneration for executives for the year ended 30 June 2013, paid September 2012, increased on average 2%, compared to a 3% to a 3.5% increase for general employees. It added that the average increase for executives will be 2% for the current year, paid from October 2013.
However, shareholders voiced their disgust at the rising salaries of senior management. Michael Perry, and member of the Australian Shareholders’ Association, said: “I still feel that the overall balance of your remuneration arrangements, particularly the CEO’s, are too slanted to the short term. After all the CEO’s job is a long-term strategic job and the rewards should come in the long term.
“I worry that you have to pay the CEO more than double that of the next reports on a consistent basis. In an exceptional year, that is understandable but this seems to go on year by year.”
Stressing that he did not wish to detract from Wilkins’ achievements, he added: “The CEO is the first among equals […]. Why this huge gap which seems to have got so much wider over the years? I wonder where it will stop? The scale of CEO packages is just outrageous today. This is not a comment on IAG. It’s a general comment on large […] companies.”
IAG chairman Brian Schwartz AM assured Perry that remuneration packages were subject to strict criteria.
“Remuneration is complex. We take into account a whole range of issues. Around 75% of the remuneration of Mr Wilkins and the executive team is at risk, which means they have to perform before they get paid [at] those levels.
“We want the best people and we believe we have the best team [...] and we pay what the market requires us to pay.”
IAG was also called to defend its plans to expand its Asian footprint. The insurer entered into a joint venture the State Bank of India (SBI) and Insurance Australia Group in 2008 to provide a range of commercial and personal lines products, and has plans to expand into China, Vietnam and Indonesia.
Shareholders raised concerns as to whether IAG was ready to expand into the Asian market given that the company sold off its troubled UK assets at a $240m loss last year.
“Diversification is risky [because of] different culture, languages and practices,” Shareholder Nagey said. “This is why many businesses lose money when they are overseas especially in Asia. Given IAG’s poor performance in the UK, what are the lessons the board has learnt? How will they be applied to the Asian business to avoid similar recurrence?”
Responding to concerns, Schwartz said: “The size of investment in Asia is nowhere near the kind of investment we made on one asset in the UK.
“We also learnt that it is very important to choose the right partners and we done that really well. In choosing the right partner, one of things we require is an acceptance that we will have our people in some of those key positions.”
Wilkins added that the SBI was “aligned” with IAG’s business values and objectives.