By Ruth Williams
ALIGNMENT. When it comes to the contentious and long-running debate over executive pay, this weasel-esque word has rarely been so popular, or the need to demonstrate it so important.
As this year's annual reports trickle in to the ASX, many companies are falling over themselves to demonstrate ''alignment''.
In other words, they are at pains to show that what they pay executives is of benefit to shareholders and the long-term health of the company - that the company's remuneration policies ''align'' with shareholders' interests.
Examples abound. ''Aligning executive remuneration with shareholder value creation is fundamental,'' explains BHP Billiton chairman Don Argus in the company's latest annual report.
PaperlinX's deferred equity plan ''provides strong alignment between (chief executive Tom Park's) remuneration and the company's strategic business initiatives'', its annual report proclaims.
Commonwealth Bank says its remuneration ''philosophy'' will meet ''best-practice governance and regulatory guidelines, align with the group's strategy, and be mindful of the interests of the group's stakeholders including shareholders, employees, customers and the community''.
After a year of slashed dividends, job cuts and lower profits, it stands to reason that well-aligned companies would reflect some of this ''stakeholder'' pain in the pay packets of senior executives.
As Martin Lawrence, from proxy adviser RiskMetrics, notes: ''We are seeing a lot of companies attempting to demonstrate alignment, such as by freezing base pay for senior executives.
''You are also seeing companies talk about a decline in bonus, or the fact that no bonus has been paid.''
And yet, despite the effort of these companies to be seen to be doing the right thing, each has been criticised for perceived remuneration transgressions.
The package granted to BHP chief executive Marius Kloppers was labelled ''sickening'' by the ACTU representative Sharan Burrow.
Questions were asked about Park's remuneration declining by barely a third in a year when the paper merchant's shares fell by two-thirds.
And although he has pledged to take a pay cut this financial year, CBA chief executive Ralph Norris was given a (relatively small) pay rise, despite a dip in profit and lower dividends at the bank.
These criticisms were relatively muted compared with some of the other canings - for example of Qantas over departing chief executive Geoff Dixon's total payout of almost $11 million.
It was an appalling look for Qantas in a year when it slashed dividends and - more distressingly - 1750 jobs.
The $2.1 million payout to Suncorp-Metway's departing chief executive, John Mulcahy, also met with disapproval, with one analyst frowning over a ''lack of alignment between Mulcahy's remuneration and the group's performance''.
But the ''golden hello'' given to new chief executive Patrick Snowball drew less attention. In its latest financial report, Suncorp explains that Snowball would buy $500,000 of Suncorp shares to ''increase (his) alignment with shareholder interests''.
Happily for Snowball, the board agreed to give him $500,000 of shareholders' money to pay for relocation expenses. This did not include the cost of temporary accommodation and a car for up to four months after the Snowball family's move, which shareholders would also pay for.
Alignment seems like a basic concept - but it is a concept that some companies have obviously struggled with. For years, companies had been able to shrug off the growing community outcry over ever- expanding executive pay packets, partly because lethargic institutional shareholders were rarely part of the outcry.
The situation was changing by the time the global financial crisis hit its zenith, in part because of the growing influence of proxy advisers.
But when it become clear that ''misaligned'' remuneration policies helped incubate what become the global financial crisis - encouraging risk-taking by executives in return for quick bonuses - the oft-cited ''pay peanuts, get monkeys'' explanation for the growth in executive salaries started to appear flimsy.
Unlike other pressing issues of post-crisis regulation - such as how to treat over-the-counter derivatives or the on-going bunfight over accounting standards - the issue of executive salaries has popular appeal. It is an issue that governments around the world have pursued enthusiastically.
In Australia, Labor has pledged to cap golden handshakes, endorsed the Productivity Commission to investigate remuneration, and commissioned the Australian Prudential Regulation Authority to better link risk with remuneration at banks and other deposit-taking institutions.
With the G20 last night preparing to turn its attention to executive salaries, and the Productivity Commission's first report due next week, the scrutiny of those companies that aren't ''aligned'' is intense - and will only become more so as this year's season of annual meetings approaches.
The highlight of annual meetings is often the vote on the remuneration report - the section of the annual report that sets out the remuneration paid to directors and executives.
A substantial vote against the remuneration report is a significant rebuke for a board, even though the vote has no binding, or legal, effect.
The likes of RiskMetrics - which advises institutional shareholders on how to vote on corporate governance issues - will be dissecting annual reports in the lead-up to the annual meetings, and many companies are well aware of the scrutiny.
''I do know that the proxy advisers will be looking very closely at the alignment of payment for performance issues,'' says Della Conroy, a partner at PricewaterhouseCoopers. Conroy and her team advise boards' remuneration committees. ''There will be a lot of focus and attention on that particular issue coming into this year's AGM season.''
Last year's eventful run of annual meetings saw a record number of remuneration reports voted down by shareholders. Coming just after the market crisis of September and October, shareholders were in no mood to overlook overly generous payments. One year on, shareholders are likely to be more aggressive.
But as Conroy points out, all the change and regulatory uncertainty - coupled with shareholder angst - have made for a ''challenging'' time for boards. ''There has been a tremendous amount happening, and what boards have had to do, in my view, is be relatively pragmatic this year,'' she says. ''There is so much going on that they have to contemplate … to ensure that they keep the talent to run the company, with an eye to what might happen in the future. That has been very challenging.''
They have also been grappling with an aspect of financial reporting that they argue unfairly inflates the total figure of an executive's package - accounting values for ''at-risk'' incentives like share grants that the executive might not benefit from for several years (if at all).
Of those companies that have lodged their annual reports, several have done away with chief executives' bonuses. Others have substantially cut bonuses - ConnectEast, Fairfax Media and Asciano Group.
But even though his bonus declined by 41 per cent, Asciano's Mark Rowsthorn still got a bonus of almost $750,000, on top of his base pay of $1.74 million, which fell by a mere 5 per cent. Asciano's loss for the year was $244 million. The figures are clearly not aligned. Last year, 32 per cent of shareholders voted against Asciano's remuneration report. Could it be one of those companies to face shareholder fury next month?