Research Note 24 1998-99

Private Sector Executive Salaries

Tony Kryger
Statistics Group
25 May 1999

Much media attention has focused recently on the very large increases that have occurred in private sector executive salaries which often seem disproportionately large compared with other sections of the community. This Research Note examine what has happened with executive salaries over the past ten years and makes some comparisons with the movement in salaries of a Federal Member of Parliament, selected grades in the Commonwealth Public Service and the community generally. These comparisons are made to highlight the magnitude of salary increases for private sector executives rather than on any assumption that the positions being compared are of like responsibility.

Chief Executive Officer

A private sector executive salary is defined here as the remuneration received by a Chief Executive Officer (CEO). Mercer Cullen Egan Dell Ltd., a company that specialises in providing human resources and remuneration strategy consulting, describes a CEO as one who 'manages and directs an organisation to achieve optimum profitability and effective use of business assets and human resources'.

Table 1 has been calculated using data supplied by Mercer Cullen Egan Dell Ltd. It shows that between 1988 and 1998, the average base salary of a CEO has more than doubled from $112 104 to $237 476. Allowances/benefits is made up of a wide range of items (see footnote (b) of Table 2) and over the ten years to 1998 has risen in value by 52 per cent to $91 046.

Incentive bonuses have risen spectacularly over the ten year period, from $12 247 in 1988 to $59 533 in 1998, or an increase of 386 per cent. It should be noted however, that not all CEOs are in receipt of an incentive bonus, though the proportion is large and has risen slightly from 50 per cent of all CEOs in 1988 to 54 per cent in 1998. The average size of the bonus for just those CEOs in receipt of a bonus has jumped from $24 728 to $111 156 over the period. As large as these figures are, they are still an under-statement as they fail to incorporate the value of long-term incentive plans such as employee share options.

Total employee reward is the sum of base salary, allowances and benefits plus actual annual cash incentive, bonus and/or commission payments received. The total remuneration package for a CEO has risen by 111 per cent from $184 263 in 1988 to $388 055 in 1998.

Some Comparisons

The movement in executive salaries over the past ten years is compared with the movement in remuneration levels of a Federal Member of Parliament, with two grades of Commonwealth Public Servant-a Senior Executive Service (SES) Officer Band 1 and a base grade clerk or ASO 1-and with the average weekly total earnings of a full-time employed adult. (See Table 2.)

Table 2. Remuneration Trends
(Dollars per annum)
	Chief Executive Officer				Federal Member of Parliament				SES Band 1				ASO 1		AWE (a) (annualised)
	Base salary	Allowances / benefits , & bonuses (b)	Total		Base salary	Electorate allowance(c);	Total		Base salary (d)	Allowances (e)	Total		Salary (d)		Full-time adult total earnings
1988	112 104	72 159	184 263		49 180	18 958	68 138		57 775	1 016	58 791		19 944		27 125
1989	124 640	91 063	215 703		55 000	21 005	76 005		58 297	8 500	66 797		21 249		28 877
1990	140 478	88 891	229 369		58 300	22 658	80 958		64 768	8 500	73 268		22 070		30 796
1991	145 244	87 498	232 742		66 387	22 685	89 072		66 387	8 500	74 887		22 622		31 844
1992	155 339	96 997	252 336		67 715	23 819	91 534		67 715	8 500	76 215		23 074		32 381
1993	160 932	95 221	256 153		68 663	23 819	92 482		68 633	13 784	82 417		23 397		33 502
1994	176 166	115 426	291 592		74 460	24 588	99 048		69 693	19 674	89 367		23 748		35 019
1995	178 336	115 666	294 002		78 987	25 540	104 527		78 587	19 674	98 261		25 192		36 651
1996	206 200	125 382	331 582		81 856	26 076	107 932		81 441	18 495	99 936		26 107		38 075
1997	220 355	72 079	292 434		81 856	26 467	108 323		82 120	20 454	102 574		26 890		39 274
1998	237 476	150 579	388 055		81 856	26 467	108 323		86 132	20 454	106 586		27 697		40 927
% increase 1988 to 1998	112	109	111		66	40	59		49	1913	81		39		51
(a) Average weekly earnings. (b) Comprises benefit value of company car, car parking allowance, annual leave loading, private travel and entertainment allowances, employer superannuation contributions and employee salary sacrifice superannuation, loan benefits, other cash payments, the cost of fringe benefits tax and value of incentive bonus, other cash payments, loan benefits, the cost of fringe benefits tax and value of incentive bonus. (c) Lowest electoral allowance paid to a member. (d) Highest increment. (e) Comprises expense of office allowance (1988 only), benefit value of SES vehicle and car parking allowance (from 1989) and average value of performance bonus (from 1993). _______Break in series caused by fact that after October 1996 service wide agreements were replaced by individual agency agreements and Australian Workplace Agreements (AWAs). Almost all SES officers are now on AWAs, the terms of which are confidential. The base salary of an SES officer in 1997 is that specified in the Notional Remuneration Package, 1997, that formed the basis for SES negotiations with agencies on their AWAs. The base salary of an SES officer in 1998 is taken from an article Pay Gap Widens at Top of PS: Survey (Canberra Times, 24 April 1999) which is based on the results of a survey by the Department of Employment, Workplace Relations and Small Business. SES allowances in 1997 are those specified in Notional Remuneration Package noted earlier and are assumed not to have changed in 1998. Salary figures for ASO 1 for 1997 and 1998 are based on Department of Finance and Administration Certified Agreement of 1997-1999 that specifies a 3 per cent increase in salary for all employees from 1 December 1997 and a further 3 per cent increase from 1 July 1998.

Care should be taken when examining remuneration levels because of differences in the scope of items included within the definition of allowances. For example, included in CEO allowances is the value of employer superannuation contributions which is not included in the allowances of a Federal Member or an SES officer. A Federal Member's electoral allowance does not include the value of a car but this is included in the allowance of a CEO and an SES officer. For these and other reasons, comparisons between levels should not be made. Rather, the only meaningful comparisons are those which look at changes which have occurred over time.

Table 2 shows that in the ten years to 1998, the total remuneration level of a CEO has risen by 111 per cent which is significantly larger than any of the other occupational classifications listed.(1) For an SES Officer Band 1, overall remuneration has risen by 81 per cent, the provision of a vehicle after 1988 being a significant factor in this increase. The rate of increase for a Federal Member of Parliament has been 59 per cent.(2) Lagging well behind is an ASO 1 whose salary has risen by only 39 per cent over the ten year period. These figures compare with a 51 per cent increase in earnings of the community generally as measured by the average weekly total earnings full-time employed adult.

1. Recent pay rises for Commonwealth Departmental Heads would appear to be bringing into line their salaries with those of private sector executives. See John Nethercote, 'Public Sector Executive Salaries', Research Note No 23, 1998-99, Information and Research Services, Parliamentary Library.
2. MP salaries were linked to SES Band 1 maximum salaries in July 1991 and to Band 2 minimum salaries in December 1994. The introduction of AWAs for SES officers after October 1996 has seen MP salaries fall behind that of SES Officers.

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