Fat cats see salaries move with profit

Published: Wednesday July 16, 2008

While companies continue to offer lucrative remuneration packages to senior executives, with some top executives receiving well over $20 million a year, it is apparent that reward is increasingly being linked to profitability.

At most public companies, whose packages to executive directors were reviewed by the Business Observer, salaries are reflective and generally moves in the same direction as the entities' bottom line.

It perhaps comes as no surprise, therefore, that the two most profitable companies on the Jamaica Stock Exchange, Scotia Group and National Commercial Bank (NCB), on average offered its executives the most hefty payouts among those reviewed.

Scotia paid its two senior executives, CEO Bill Clarke and chief financial controller, Stacie-Ann Wright, a combined $68.3 million during its year ended October 31, 2007, with Clarke expected to be the recipient of the majority share. Scotia, for years the top earning firm, recorded net income of $7.6 billion over the period under review.

NCB's two executive directors, managing director Patrick Hylton and his deputy, Dennis Cohen, also shared $68.3 million, or an average of just over $34 million. The banking giant, which is owned by Jamaican-Canadian billionaire, Michael Lee-Chin, earned $6.6 billion during its last financial year.

The two big banks were followed by Seprod, which is run by Byron Thompson, and Supreme Ventures, whose CEO is Brian George, which paid their top executives, respectively, an average of $25.8 million representing an improvement over the previous year - and $21.7 million, lower than the year before. Seprod saw a more than doubling of its net profit to $1 billion for the year ending December 31, 2007, while Supreme Ventures reported net loss of $31 million for the year ended October 31, 2007, down from a $179-million net profit the year before.

At Mayberry Investments Limited, a 40 per cent increase in net profit at that company's year end last year, was a major factor for the average compensation among its five executive directors - Christopher Berry, Konrad Berry, Erwin Angus, Gary Peart and Sharon Harvey-Wilson - jumping significantly. The corporate executives received a total management remuneration package of $76.3 million in 2007, or an average of about $15 million. Total compensation the year prior was $45.9 million, or an average of $9 million.

"A proportion of our compensation is dependent on the profitability of the company," said Gary Peart, Mayberry's chief executive officer, yesterday. "With the increases, you would expect to see that the compensation of that group increases."

Mayberry earned net profit of $372.6 million last year, compared to $261.2 million earned for the corresponding period of 2006. According to Peart, there is equity based, profit share based and a fixed component in determining compensation. The fixed component is compared across the industry, but profitability and individual performance are huge variable factors. The latter of which is critical at Mayberry because, in addition to overseeing the firm's solid performance last year, some of the executives are also involved in actual trading, which amounted to $374 million or 40 per cent of the company's earnings.

"At Mayberry, the executives have more hands-on responsibility - we trade," noted Peart. "In some other companies, the CEOs are
more administrative."

According to GraceKennedy's chief financial controller, Fay McIntosh, the conglomerate pays their senior executives, such as Douglas Orane, a basic salary plus incentives, depending on how the group performed over the financial year. However, like at Mayberry, individual performance is integral.

"Performance plus profitability...but If you are profitable and the person doesn't perform, that wouldn't mean an increase," emphasised McIntosh.

Grace paid its eight directors a total of $99.2 million, or an average pay of $12.4 million last year - compared to $9.8 million the year prior. The firm's net profit increased by 89 per cent to $3.5 billion last year, particularly due to a one-off gain after the sale of 25 per cent of its money services division to Western Union. McIntosh highlighted however, that the gain from the sale was not factored in determining salary increases.

"We would not be paying our managers on an exceptional situation such as a one-off sale," she noted.

Jamaica Money Market Brokers (JMMB), though on the wrong end of the trend, also depicts a scenario in which management compensation moves in the same direction as the company's overall performance. JMMB's net profit dipped by 18 per cent last year, from $1.1 billion to $943 million, and seemed to have played a part in the decline of the directors' compensation. The firm's total remuneration package to its two executives - Keith Duncan and Donna Duncan-Scott - fell by 12 per cent last year to a combined $41.3 million.

Port Authority of Jamaica (PAJ) president Noel Hylton and his executives, collectively saw a 44 per cent increase to their salaries, with Hylton's own emoluments totalling $12 million for FY 2007, up from $8.5 million the year before - a 41 per cent increase.

The PAJ's annual report for the fiscal year that ended March 31, 2007 (FY 2007) showed a net surplus of $1.76 billion, which was a significant improvement over the $492 million the state-run company made the year before, but a large part of the gains in both years, however, reflected an accounting principle that brings the valuation of the firm's expanded plant, or 'fair value adjustment', to the income statement.

Investment property fair value adjustment was $1.56 billion during FY 2007 and $573 million the year before, suggesting that the PAJ made a loss during the fiscal year that ended March 31, 2006 and a small gain during the last fiscal year from its operations.

Despite the fact that executives are handsomely paid, one executive, who requested anonymity, was quick to point out that this sum includes benefits that do not go directly into their pockets, as well as statutory deductible components.

"This is just a gross figure and is not as favourable as it appears," said the director, who earns well into eight figures. "Nobody sees what you make when you are finished with all the deductions."

Roxiana Malcolm, Group Financial Controller at media powerhouse Radio Jamaica Limited (RJR), supported the executive's assessment.

"(Remuneration) would include all the statutories such as NIS, NHT, pension, as well as staff training if the managers received it," she disclosed.

At RJR, $26.9 million is shared among the company's four executives, representing an average payout of $6.7 million. At another media house, the Gleaner Company, $28.7 million is shared among its two executive directors, with managing director Oliver Clarke likely receiving the lion's share.

It is assumed in some circles that Jamaican senior executives "overpay themselves" and are not fair in spreading rewards across the company organisation chart. However, Dr Leachim Semaj, chief executive officer of the Job Bank, dismisses those accusations.

Semaj said that salaries are determined based on careful negotiations. Because of the short supply of expertise skills that these executives possess, top management can demand more. A lot of Jamaicans, he says, do not fully understand these principles, which causes animosity towards company hierarchy.

"When a company is generating so much billions of dollars in sales and a person is responsible for making sure that that happens, you can't really grudge the man who gets that compensation," said Semaj. "When a person is (largely) responsible for billions of dollars in turnaround and the buck stops there, then the compensation is reflected in what the person's responsibilities are."

"The West Indies (cricket) team is overcompensated because they are not a performing team," the psychologist joked.

Head of the Jamaica Employers' Federation (JEF), Jacqueline Coke-Lloyd, offered a similar assessment to Semaj. She said that Jamaica is one of the best in the region in terms of compensation management and benchmarks with other international bodies to get a fair balance.

The JEF, she said, has conducted salary surveys that distinctly highlights that Jamaican companies are breaking towards performance-based pay, and the mechanism which determines a manager's reward is generally a democratic decision among board members.

"These things are board decisions now, and at the beginning of the year most companies' deliverables are set, and (management) compensation and benefits are based on their ability to deliver," she said. "CEOs just can't get up and give themselves an increase; those days are over."

But even after the deductibles, there are other costs that impact on how "well-off" a Jamaican executive actually is in reality. According to Coke-Lloyd, security costs is a major expense incurred by corporate executives. A cost, which she says, when compounded with the weak Jamaican dollar, means that local corporate heavyweights are just average earners in the region.

"Because of our exchange rate and our cost of living, what a manager earns (in Jamaica) is actually less than other parts of the region," noted Coke-Lloyd. "If you look at security costs and other overheads that managers have to deal with at a personal level, other managers in other jurisdiction don't have it."

"In Jamaica you have to have security, not only for yourself, but also for your family," she added..


Source: Jamaica Observer
http://www.jamaicaobserver.com/magazines/Business/html/20080716T000000-0500_137923_OBS_FAT_CATS_SEE_SALARIES_MOVE_WITH_PROFIT_.asp