How to manage shrinking CEO salary packages
The landscape has been changing.
Australian parliamentary hearings made headlines in 2016 and have hauled the CEOs of the big 4 banks up to discuss banking misconduct, fat bonuses, huge salaries and denied insurance payouts. And the pressure is on not just the finance sector but other corporate titans to outline how they’ll fix issues within their own sectors and placate disgruntled consumers, while still taking home their multi-million dollar salaries.
CEOs in the charitable sector have also faced their share of criticisms when taking home large salaries and some of their critics have called for the introduction of a pay cap.
Salaries are changing
Over time, Harvard Business Review tells us, salaries have increased in ratio between CEO and average company workers, going from 24 to 1 in 1965 to around 300 to 1 in 2009. By 2014, the USA CEO-to-worker pay ratio had ballooned to 354 times, with Australia at 93 times. Australians thought about 8.3 times was an ideal ratio, so the tolerance level of the general population for this level of inequality seems remarkably high.
In comparison, the man with ‘the most powerful job in the world,’ the US President, takes home a mere US$400k plus US$169k in expenses and allowances. Hardly a stand out wage for one of the toughest gigs on the planet.
With many disgruntled employees, shareholders and consumers, calls are being made to cut large CEO packages, or at the very least, tie them to performance outcomes. And it’s not just the packages that are decreasing, termination payments are also shrinking.
The once sought after ‘golden parachute' has gotten considerably smaller over the past five years in Australia.
So, if your remuneration is likely to start going backwards rather than forwards, how can you manage the transition?
For some, it’s a choice
A better lifestyle opportunity when taking a new job with a lower salary may be just what the doctor ordered, improving health and relationships with spouse and family being of greater importance than an increasing wage. Those craving a better work-life balance may also be happier living on a lower wage for less hours in the office. If new opportunities offer the job you have been craving, or perhaps you are not as happy in your current role as you would like, then a pay cut for a new role is preferable to burn out.
Try cutting back
Unfortunately, most of us don’t live within our means, but at our upper limit, or even beyond it! But, consider, if your current package was 10% less than it currently is, you would likely cope with living on that wage. So why not try it now?
Start siphoning off that 10% as if you never earned it. Work out the best place to put it, where you are unlikely to touch it – maybe an offset account or internet only access account – and work out a personal or family budget based on your new ‘lower income’.
If you are managing that easily enough, try a 15% or 20% reduction in what you are now ‘appearing’ to be paid. Can you still manage to bring down debt on the ‘reduced income’ and meet your personal needs?
Be prepared
If you are feeling the winds of change blowing your way, don’t hope and pray that they pass you by. It’s time to ‘get your house in order’. Does your level of debt need to be reduced? Is it time to take some gains on your investment portfolio to bring down what’s owing? Perhaps consolidation of funds or sale of assets may be in order. It may be wise to sit down with your financial adviser or personal banker to do a review of your circumstances and investigate options before they happen. Have a Plan B ready in the wings so you don’t have to make any hasty decisions when the time arrives.
It’s always better to be on the front foot and prepared for change than to be left floundering in its wake.