It was either Otto von Bismarck or Claud Cockburn who said, "Never believe anything until it has been officially denied." Whoever it was, and the internet seems a little confused on the matter, they were on to something.
A few of Australia's corporate heavies recently gathered at an Australian Shareholders Association meeting to bemoan the "two-strikes rule".
Not because they thought shareholders shouldn't have a say in CEO pay – oh no, couldn't possibly be that – but because the "provision could be used as a stalking horse for other matters", according to Bob Every, the Wesfarmers chair.
David Gonski, the education guru and chairman of Coca Cola Amatil, expressed similar concerns, especially with regard to the 25 per cent cut in.
This is the official denial we've been waiting for: the two-strikes rule is working just fine.
The rule refers to a law that allows shareholders to vote on executive remuneration. If more than 25 per cent of a vote is registered against management remuneration, one strike is recorded. If that vote is repeated the following year, that's two strikes.
If more than 50 per cent of shareholders then vote for a board spill, directors face re-election within 90 days.
Naturally, boards long accustomed to doing exactly as they please will resist any form of accountability. But board spills and re-elections, bought about by shareholders? That's almost, cough, splutter … democratic.
Alumina is the latest to sit on the corporate ducking stool. At the recent annual meeting, shareholders were hurling slings and arrows upon the pay of chief executive John Bevan, who will earn $2.2 million for the year.
They have a right to be incensed. It's a truly ludicrous, scandalous amount of money for such a limited role.
Alumina's sole asset is a 40 per cent stake in Alcoa World Alumina and Chemicals (AWAC). AWAC actually makes something – alumina in fact – and faces decisions regarding production, cost structures and capital allocation. You know, actual, proper management sort of stuff.
All John Bevan has to do is bank the dividends that AWAC sends him and decide how much to distribute to shareholders. Think of driving over the Harbour Bridge and handing over your money to a toll collector in a really nice suit and you get the picture.
Two years ago, Alumina was trading at well over $2 a share. Since then, the share price has halved. In February the company announced a loss of $62 million for 2012, compared to a profit of $127 million the prior year.
It's fair to say that shareholders, facing a depressed share price and no dividend, have suffered. But John Bevan? His $2.2 million pay packet included a $573,400 bonus for the year.
Acting for the defence is chairman John Pizzey, another beneficiary of shareholders' largesse. In 2010, they paid him $152,600. The year after he got $205,894 and in 2012 he got a very handy $376,123. That's an 83 per cent increase in remuneration in 12 months.
Can you imagine how difficult it must be for a chairman to pressure a CEO to accept less pay when they're both milking the same teat?
The first leg of Pizzey's defence claims that Alumina's underperformance is due to commodity prices, something that's completely beyond the control of the company.
Absolutely spot on John. But that must also mean that any subsequent out-performance will have nothing to do with management either.
Given that Bevan's job is largely administrative, it's odd that there's an incentive scheme at all. It's a bit like giving your bookkeeper a bonus just for turning up.
Pizzey also claimed that Bevan did a good job renegotiating debt and orchestrated a favourable financing deal during the year.
Can't argue with that. But if Bevan's $1.13m in "fixed remuneration" doesn't include doing stuff like this, what does it include? Perhaps he does the afternoon coffee run and shouts everyone a Portuguese tart?
Alumina seems to believe its CEO gets $1.13m for getting to the company car park in the morning. The other million-plus is an encouragement to enter the office and actually do his job.
To be fair to Bevan, there are many other CEOs benefitting from exactly this type of arrangement. There are plenty that are paid more than him too.
But I doubt there are any that are so handsomely rewarded for doing so little, with so little influence over profitability.
A reckoning is long overdue. Investors should be overjoyed that we finally have a way of delivering it. Roll on strike two.
This article contains general investment advice only (under AFSL 282288).
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