Australian football league share price

Remuneration

Week 12 Workshop

MBA402 Governance, Ethics and Sustainability

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• What does American business magnate Warren Buffet mean when he says:

Small Group Discussion

Too often, executive compensation is ridiculously out of line with performance.

• In groups, think of an idea the Australian Football League could implement to give new clubs a chance to successfully compete.

The Australian Football League has a problem. Australian Rules Football is rapidly evolving into a truly national sport with two new clubs from outside Victoria – Brisbane and West Coast – being admitted into the competition.

Three Victorian clubs – Carlton, Essendon, and Hawthorn – have won seven of the last eight premierships. These three clubs are among the richest in the competition and therefore able to pay the highest salaries to players.

The League is concerned that if Carlton, Essendon, and Hawthorn continue to dominate the competition then the new clubs will struggle to build local fan bases and ultimately fail.

Small Group Challenge Melbourne, Australia 1987

Compensation

• Compensation is an award for service. • Companies must set director and

executive remuneration at levels sufficient to attract and retain talent.

• But they must also ensure director and executive remuneration is not excessive nor misaligned with shareholder interests.

Principle 8 8. Remunerate fairly and responsibly

Companies should pay director remuneration sufficient to attract and retain high quality directors and design their executive remuneration to attract, retain and motivate high quality senior executives and to align their interests with the creation of value for shareholders.

Remuneration Policy

• Companies should have a formal and transparent process for developing their remuneration policies and for designing the remuneration packages of directors and senior executives.

• No director or senior executive should be able to decide his or her own remuneration.

Disclosure

• The relationship between director and executive remuneration and performance, and how remuneration packages are aligned to the creation of value, should be clearly explained to shareholders.

• What does American comedian Steve Martin mean when he says:

Small Group Discussion

All I’ve ever wanted was an honest week’s pay for an honest day’s work.

• In groups, figure out how Dan should manage Jason’s pay dissatisfaction.

Dan Price, CEO of credit card processing company Gravity Payments, has a problem. Jason Haley, an entry level employee earning $35,000 a year, is skulking around the office in a bad mood.

Dan approaches him. “Seems like something’s bothering you.” “Yeah. You’re ripping me off,” Jason says. Dan is shocked and hurt by the accusation. “Your pay is based on market rates,” Dan says. “If you have different

data, please let me know. I have no intention of ripping you off.” “The data doesn’t matter,” Jason replies, “I know your intentions are

bad. You brag about how financially disciplined you are, but that just translates into me not making enough money to lead a decent life.”

Small Group Challenge Seattle, US 2011

Income Inequality

• Income inequality refers to the extent to which income is distributed in an uneven manner among a population.

• Despite widely held views that Australia is an egalitarian society, several indicators suggest that income inequality is relatively high and not falling over the long term.

CEO Pay

• The average total pay for chief executives in Australia’s top listed companies is around 63 times an average worker’s earnings.

• The average total pay for chief executives in U.S. top listed companies is around 350 times an average worker’s earnings.

Recommendation 8.1

8.1 The board of a listed entity should: (a) have a remuneration committee which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director,

Recommendation 8.1

8.1 and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or

Recommendation 8.1

8.1 (b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive.

Board Committees

• All directors are equally responsible for the governance of the company.

• Board committees can provide independent and objective corporate governance supervision.

• Board committees prevent management domination of board decisions.

Remuneration Committee

• The remuneration committee makes recommendations to the board regarding: o the company’s remuneration framework

for directors. o the remuneration packages to be

awarded to senior executives. o equity-based remuneration plans for

senior executives and other employees.

• What does Canadian economist John Kenneth Galbraith mean when he says:

Small Group Discussion

The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the

nature of a warm personal gesture by the individual to himself.

• In groups, suggest a course of action the shareholders could take regarding t