Should private companies ever disclose their executives’ pay?

There’s little benefit or moral imperative for private entities to make public what they pay their executives and managers, according to governance expert Dean Paatsch.

His comments follow reports independent senator Nick Xenophon is preparing new laws that would force Australian super fund managers to disclose their executives’ pay rates.

”The transparency framework for super funds hasn’t caught up with their exponential growth or their critical importance to the savings of millions of Australians,” Xenophon told Business Day. Superannuation funds, which hold $1.3 trillion of Australian taxpayers’ money, are managed by fund managers, which are private companies.

Neither those companies, nor the super funds that appoint them, are currently under any legal obligation to publicly disclose what the fund managers pay their senior management. And there is no clear link between company performance and pay transparency, according to Michael Robinson, executive director of remuneration consultancy Guerdon Associates.

“The jury is still out on that,” he says.

However, he adds that there is a benefit in transparency in executive pay: if the company performs badly, its owners are more likely to demand their executives’ pay is cut in line with that performance.

“Generally, economists say there is a benefit to this because it reduces the ‘agency cost’. So, in other words, it aligns the incentives of both the manager and the company.”

Private companies in family ownership may find this pay alignment not important, but it can be highly desirable for superannuation funds managing billions of investors’ dollars.

Robinson identifies another benefit to super fund disclosure.

“These super funds, their administrators and trustees exercise votes on executive pay for the listed companies they invest in, and agitate for transparency there.

“Why not apply that to themselves?”

But Paatsch says he doesn’t see the point of private companies making their senior pay public – even superannuation funds. He believes consumers need not worry about the pay going to fund managers, but should be concerned with the fees the fund manager charges the superannuation fund.

“Customers of super funds don’t own or invest in those fund [managers],” he says. “When you buy your telephone plan, you don’t demand the right to set the pay for executives of the telephone company.

“It’s interesting from a societal point of view, but from a governance or ownership angle, you’re free to use or not use those financial products. You should be concerned about the fees you’re paying, not how those fees are divided up.”

Asked if there’s ever a benefit to a super fund in making its compensation arrangements public, Paatsch says it may fit into a fund’s culture.

“For [those with] a great story to tell – maybe about the low level of pay relative to the expectation in the sector – there might be an opportunity.”