06 Dec v2 Comparison of Executive Compensation between U.S

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Comparison of Executive Compensation between U.S and Australia

Introduction

Regulatory bodies in Australia and the United States (US) share various features. Nevertheless, there are significant differences between them in terms of regulatory structuring and capital market. As much as institutional investment is popular in the US, a dispersed share ownership model persists (Hill et al. 2010). Australia, on the other hand, similarly experiences high institutional investment levels, but corporate sector listed companies significantly use the block-holder ownership model. Such stakeholder differences have significant effects on the executive pay framework. However, historically, market mechanism have been central to determining pay in both Australia and the US, with little legislative intervention. A comparative analysis between the United States and Australia will allow for a better understanding of the optimal managerial power and contracting models in executive pays between the two countries.

Comparison of Executive Compensation between U.S and Australia

As much as the regulatory regimes of Australia and the US share various features, significantinstitutional differences exist between them in terms of regulatory structures, tax, and capital market (Hill et al. 2010). The issue of executive compensation efficiency has been widely debated and studies in theUnited States, with some arguing that it is skewed given the shareholder-manager imbalance in power experienced within companies, while others noting that it is effective and determined at arm’s length. While one model possess significant explanatory power in the US, this is not the case for Australia. The base salaries of Australia’sexecutives are significantly higher in comparison to those of US executives, while the latter are mostly compensated with stock options and restricted stock as compared to Australians (Hill et al. 2010). Interestingly, the employment contracts of US executives last longer as compared to those of Australians. Moreover, the US contracts are more likely to have SERPs, do not compete clauses, tax gross ups, change-in-control provisions, and arbitration provisions than Australian contracts (Hill et al. 2010). The Australian contracts, on the other hand are more likely to incorporate performance hurdles that an executives must attain for them to receiverestricted stock and options (Le et al. 2020). Most of the Australian contracts also restrict executive hedging of stock options and restricted stock.

Executive Compensation in the U.S.

As much as there are significant differences in the amounts of compensation for executives across the globe, there are basic components that are included in most packages. Standard compensation arrangements include a salary, long-term incentive plans (LTIs), annual bonuses, restricted stock grants, and restricted option grants (Hill et al. 2011). Like the rest of the workforce, executives also receive retirement and terminationpayments and contributions to pension plans. In 2012, the average ChiefExecutive Officer (CEO) compensation among the top 350 firms in the US was close to $14.1 million, while the average received by CEOs in the public companies was $10-12 million (Mishel &Sabadish, 2013). Between 1978 and 2012, there was an 875% increase in CEO compensation in the US as measured by options realized. This increase was more than twice that of stock market growth and higher than the 5.4% increase observed in the compensation of typical workers(Mishel & Sabadish, 2013). On the other hand, in comparing the difference in CEO compensation between 1978 and