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Executive pay reflects and shapes company culture. Misalignment creates reputational and stakeholder risk.
Incentives should balance short-term outcomes with long-term value creation and drive performance, resilience and capability.
Boards must maintain clear frameworks, transparency and regular oversight to ensure remuneration aligns with strategy and purpose.
Executive pay isn’t just about numbers, it sends a message about a company’s culture, priorities and values. When boards get it wrong, controversy, shareholder pushback and reputational damage can follow.
Of all the challenges boards encounter, determining executive remuneration is an area where they can go seriously wrong.
Consider the recent dilemmas faced by Macquarie Group over the reported total pay package of around $30 million for CEO Shemara Wikramanayake.
About 25 per cent of shareholders voted against the group’s remuneration report in July 2025, citing concerns that pay structures had not been adequately adjusted following a string of regulatory failings flagged by the Australian Securities and Investment Commission, reported The Guardian. It sued Macquarie over the alleged underreporting of millions of short-selling trades over more than 14 years.
Outside of ASX-listed companies, wrangling with executive remuneration can be just as challenging.
In the education sector, the substantial salaries of private school principals have attracted criticism from parents, commentators and independent think tanks demanding increased transparency and accountability.
In a 2024 report, The Australia Institute found private schools receiving government funding and tax concessions pay principals up to $1 million a year. “This appears to be in breach of the Act that requires them to pay no more than reasonable market value, given public school principals are paid between $140,000 and $216,000,” it said.
For boards that want to avoid controversy and arrive at values-aligned decisions regarding executive remuneration, a key question to answer is, “will the framework and structure be defensible when things go wrong?” says Ilona Charles GAICD, co-founder of Shilo People, which works with CEOs, founders, executives and boards growing or transitioning business.
“Stakeholders don’t expect perfection, but they do expect coherence between what a company or organisation says matters and what it pays for,” she says.
“Remuneration is one of the most visible signals a board can send internally and externally about its culture and values. A well-designed remuneration framework should reinforce the right behaviours and decision making. It should drive executive behaviour that is consistently aligned to the organisation’s purpose, strategy and risk appetite.”
Remuneration consultant Warren Land, co-founder of The Reward Practice, agrees. “Good structure does more than reward outcomes,” he says. “It reinforces behaviours that create those outcomes sustainably by encouraging performance, judgement and risk management. Benchmarking is only the starting point.”
In considering how remuneration should reflect risk tolerance, boards need to be clear on which stakeholder lens they are applying, he says. “In listed environments, risk-adjusted pay is often explicit, whereas in sectors like education, stakeholder expectations are framed quite differently.”
Land adds that external volatility is becoming an increasingly important consideration and the challenge for boards is deciding whether to adjust outcomes after the fact or design frameworks that anticipate volatility upfront.
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Getting the scorecard right
Following the 2018 Financial Services Royal Commission, which revealed widespread financial misconduct, the AMP board faced intense scrutiny for poorly aligning executive incentives with client outcomes and company performance, reported The Guardian at the time. This created severe reputational damage, leading to a “revolt” by investors, including a first strike against the company’s remuneration report in 2023, with nearly 50 per cent of shareholders voting against it.
In April 2025, AMP confirmed it was cutting the maximum short-term incentive (STI) for the CEO and executive team from 200 per cent to 150 per cent of fixed remuneration, effective from 1 January 2025, to reflect market practice and investor expectations.
According to research by The Reward Practice, financial and operational metrics such as revenue growth, profit and return on capital typically dominate STI design, while long-term incentives (LTIs) are more strongly aligned to shareholder value, tenure and long-term strategic outcomes.
Land suggests strategies for arriving at the appropriate remuneration package including STIs and LTIs, encompass: ensuring pay structures align with risk-management outcomes and incorporate provisions to handle risk issues or misconduct; extending deferral periods for variable pay to align with the underlying business cycle; using a mix of performance metrics; and regularly reviewing the performance-pay link to ensure it supports company strategy.
Achieving the right balance, however, remains one of the most difficult judgement calls for boards, says Andrew Holland, a partner in KPMG’s Performance and Reward practice, who advises ASX‑listed companies and boards on executive remuneration and incentive design.
Holland says a recurring issue is that STI scorecards often attempt to address too many objectives at once.
“Boards quite rightly want remuneration to reflect strategy, risk, culture, safety and sustainability, but when scorecards become overly complex, they can lose their effectiveness,” he says.
“A more robust approach is to clearly articulate three to five enterprise priorities for the year and ensure the scorecard reinforces those choices. In practice, the most important decision is often what not to include in a given year, so the remaining measures genuinely influence behaviour and performance.”
Creating long-term value
When long-term value creation is the goal, Charles believes the board should be rewarding capability building and resilience, for example, improved customer outcomes, stronger leadership bench and succession, better controls and delivery of strategic milestones.
“I would suggest a well-defined LTI or STI plan with deferrals that anchor delivery over multiple years,” she says.
At Lendlease, shareholders and activist investors challenged executive pay and disclosure, arguing such incentives did not properly reflect long-term strategy and project delivery, forcing the board to engage more transparently and rethink alignment, according to The Australian Financial Review.
At the November 2023 Annual General Meeting, 39.82 per cent of votes were cast against the remuneration report, a "first strike" under Australian law, alongside a similar protest vote against the re-election of long-serving board members.
Activists argued that executive incentives did not reflect long-term strategy or project delivery, specifically citing a 47 per cent drop in share price since CEO Tony Lombardo began his turnaround strategy in 2021.
Lombardo was later reported as the only ASX 100 boss to receive a zero bonus for FY24.
Rewarding performance
So how do you know if you are paying too much or too little?
Charles says metrics included in CEO KPIs that can act as a guide haven’t changed significantly for some time. “The key non-financial metrics should include customer outcomes and trust, risk and control systems, culture and leadership and strategic priorities. In the current climate, we may also see reference to ESG requirements and the strategic use of technology and AI.”
If the company strategy fundamentally changes, risk profile shifts, the business model evolves or there are clear stakeholder expectations not being met, a reset of these may be needed, she says. “But resetting too regularly undermines the efficacy and reduces the ability to achieve sustainable outcomes and impact.”
At the same time, differentiation of performance to ultimately create value continues to be a challenge, says Land. “If high performers and average performers are rewards, similarly, the signal becomes one of entitlement rather than performance. The reality is you don’t necessarily need to pay more overall, but you do need to distribute it differently.”
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