The publication of the Jefferson Smurfit Group annual report is not an event that usually sparks much interest in the Dublin financial market. The results contained in the 90-page glossy document have already been published and the other information is mostly historical.
This year was different. For the first time, the Smurfit Group was going to disclose how much it paid Dr Michael Smurfit, the chairman and chief executive, and the reports release on Tuesday was eagerly awaited. When it comes to executive pay, seasoned Smurfit watchers have come to expect big numbers that do not seem to reflect the less-than-stellar performance of the company share price, but the company has always buried Dr Smurfit's pay in with all the other directors. This hindered direct comparison with other businessmen and the company's performance.
Last year Dr Smurfit got €6.6 million (£5.2 million) from the group and its US associate Smurfit Stone. He was paid a basic salary of €1.37 million and a bonus of €3.1 million, plus other benefits worth €130,000. In addition, he received €1.97 million from Smurfit Stone, the company's 29 per cent owned US associate. During the same period, the year to December 2000, the company's shares slid from €3.00 to €2.10, having hit a low of €1.40. This compared with average gains of 30 per cent in the US paper and packaging sector against which Smurfit likes to compare itself - for the purpose of setting executive salaries in any case. The company's performance in the year to date has been equally disappointing with the shares now under €2.00.
AIB Group also published its annual report this week, which also gave a breakdown of the salaries paid to its senior executives. Mr Tom Mulcahy, the out-going chief executive of the bank was paid €1.2 million in the year to December 31st, 2000. AIB shares rose from €11.32 to €12.35 during the same period, having peaked at €13.10.
On the face of it, the two men's salaries bear no relationship with each other. AIB is four times the size of Smurfit in terms of market capitalisation, and Mr Mulcahy and his team created significant value for AIB shareholders last year. Despite this, Mr Mulcahy was paid in the region of one-fifth of Dr Smurfit's package. Both companies have broadly similar policies on executive pay. According to the Smurfit annual report, a compensation committee "determines the contracts of service and remuneration of all executive directors. Remuneration rates for executive directors and other senior executives are reviewed in consultation with the chairman and, where appropriate, the president and chief operations officer, and against periodic markets surveys from specialist external remuneration consultants".
It adds: "The company expects top levels of ability and commitment from all members of management. In return, it aims to provide an attractive compensation package linked to the financial prosperity of the company and its shareholders." At AIB, policy in respect of the remuneration of executive directors is "to provide remuneration packages which attract, retain, motivate and reward the executives concerned, and by ensuring strong links between performance and reward, encourage them to enhance the company's performance".
When considering such packages, cognisance is taken of "the levels of remuneration for comparable positions, as advised by external consultants; the responsibilities of the individuals concerned; their individual performance measured against specific and challenging objectives; and overall group, performance".
AIB's remuneration committee is made up of non-executive directors, including chairman Mr Lochlann Quinn. The Smurfit compensation committee is also made up of non-executive directors, including Mr Peter Gleeson and Mr Ray MacSharry, the former Fianna Fail Minister for Finance and European Commissioner. Despite having similar policies on remuneration and similarly constituted committees, the two companies would appear to have very different views on what executives are worth.
Smurfit makes a point of including US paper companies in the peer group that they use to benchmark pay. Smurfit makes more than 50 per cent of its profits in the US and Canada but whether this approach is justified on the basis of just 16.1 per cent of sales being in North America is a moot point. More than 60 per cent of staff and 50 per cent of assets are in Europe. AIB earns 29 per cent of its profits in the US and 32 per cent of its income comes from this market. Only the head of the US operation, Mr Frank Bramble, earns a salary set by comparison with US banks. Mr Bramble earns €1.7 million, which is €500,000 more than Mr Mulcahy. Perhaps the real difference is that the AIB chief executive owns a fraction of 1 per cent of AIB, while Dr Smurfit has 6.81 per cent of the company that he has controlled for 30 years.
