We are starting a series today: The Chronicles of Executive Greed. Today's culprit is Mark Rowsthorn, the chief executive of Asciano.
The whole point of capitalism, and the pay-for-performance principle in executive remuneration, is that the executive be rewarded for performance, not failure.
This year, as augured, company boards and their lackeys the remuneration consultants are working out all sorts of ways to pay executives more, or sometimes slightly less, despite the shareholders who actually own their companies losing money.
This is an extremely rugged year all around and the hired labour, executives that is, should be sharing in the pain rather than making an unwarranted gain. If pain is earning $1 million rather than $5 million ... tough.
A few of the offenders to date are Owen Hegarty of Oxiana (now Oz Minerals) fame, John Mulcahy of Suncorp, John Alexander of ConsMedia and Geoff Dixon of Qantas.
Today's culprit is Mark Rowsthorn, the chief executive of Asciano. Rowsthorn received 70% of his short-term bonus despite the group's poor performance. Further, accounting hurdles for his long-term incentive are too low and his termination payment too high.
Three-quarters of his executive options grant vests according to the growth in EBIT which is not adjusted for the issue of further securities or on capital employed. EBIT of course is "before interest'' and interest is the very thing which has laid the Asciano stock price low.
Rowsthorn was on the board of Toll when it demerged Asciano. Unfortunately for Mark Rowsthorn, who picked up the top job at Asciano, he also picked up all the debt.
Yet he did compound the mess by attempting to make a leveraged play for the giant Brambles, which cost time and money, and failed to get to the market to raise more capital before the credit meltdown. Asciano's interest bill was $380 million last year.
Having blown $103.7 million on the Brambles expedition and presided over a loss of $85 million pre-tax, not to mention a stock price which sank from $10.76 to $3.47 (now $2.75), Rowsthorn picked up a $1.26 million bonus on top of a $1.8 million salary.
To be fair, Rowsthorn voluntarily agreed to surrender $750,000 of last year's short-term bonus when it comes to bonus time in 2008-09.
And his pay is not literally his responsibility.
Rather it is up to his chairman Tim Poole. Poole also has something of a conflict since he is on an advisory board of LEK Consulting and LEK picked up a cool $635,276 from Asciano during the year.
mwest@fairfax.com.au
