Are ag shareholders getting screwed?

Are the ag shareholders doing as well as the managers and directors?

YOU may have noticed that Australian Agricultural Company (AAC) chief executive officer David Farley got a pay rise last year of 28 per cent, taking his total remuneration to $1.2 million.

The salaries paid to senior executives by Nufarm (NUF) in 2012 were similarly healthy. CEO Doug Rathbone received $3.08 million, while 10 executives each received between $500,000 and $1.2 million. Total remuneration for “key management personnel” rose 28pc versus an increase in the company’s overall personnel expenses of 7.6pc.

Don McGauchie is chairman of both AAC and NUF and received approximately $300,000 in director’s fees from each of them.

And just to round things off, salaries at fertiliser company Incitec Pivot (IPL) are not shabby either. No executives qualified for incentive payments in 2012, yet the CEO still received $2.1 million and the head of fertilisers $800,000.

The issue that concerns me is this - are the people who own these Australian agribusiness firms, the shareholders, doing as well as the managers and directors?

Not by my reckoning.

AAC likes to talk about a turnaround strategy, but it has a long history of destroying shareholder value. Last year was no exception; the company incurred a loss of $8.4 million with EBIT down 71pc on the prior year.

The ban on live exports continued to have an impact but the company has rarely done shareholders any favours. Total Shareholder Return has been negative for four of the past five years.

NUF lost the plot a couple of years ago and has been struggling to find a new one. The company is back in the black now and paying modest dividends, but Total Shareholder Return over the last three years has averaged -15pc per annum. Return on shareholders’ equity in 2012, at 9.8pc, is far from stellar.

IPL is also profitable and pays dividends, but overall EBIT was down 22pc with fertiliser EBIT down 40pc on 2011. Total Shareholder Return was 4pc and has averaged just 3.1pc over the last three years.

Management salaries relative to shareholder returns ought to be a key concern for the company’s owners. In my view an ideal formula would be for executives to be paid a low base salary plus a commission based on their performance at delivering shareholder value.

I wouldn’t care how much commission they earn, as long as shareholders do better.

Ensuring management remuneration does not come at the expense of shareholders is the responsibility of directors, yet they rarely seem to take it seriously. Annual reports contain pages and pages of discussion about remuneration, and short and long term incentives abound, but the figures tell their own story. Executives frequently get more even as shareholders lose money.

The true views of many directors can probably be discerned from the fact that they inevitably ask shareholders to approve an increase in directors’ fees irrespective of the company’s performance.

Overall they are part of the problem rather than the solution.

The lack of interest in this issue by shareholders encourages others to intrude. Customers and lobby groups, for example, regularly use high executive remuneration as evidence that companies are engaging in rapacious pricing. Governments, which never need much encouragement to meddle, are tempted to stick their noses in.

The thing is, salaries are not particularly high in the agribusiness sector overall. Indeed, with the exception of those who also have a foot in the finance sector, they are mostly fairly modest.

That goes for the multinational chemical companies that compete with Nufarm too. While they pay well enough to attract applicants for vacancies, their Australian CEOs and senior managers do not receive anything like the remuneration seen at AAC, NUF or IPL.

It is high time shareholders elected directors who are on their side. And if for some reason they can’t do that, they should not invest in companies that allow management to benefit at their expense. I do not have shares in AAC, NUF or IPL.

  • David Leyonhjelm has been an agribusiness consultant for 25 years. He may be contacted at
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    Pro Freedom
    25/02/2013 5:36:24 AM

    Another great piece, Mr. Leyonhjelm! Thanks!
    Just Another Farmer
    25/02/2013 5:49:50 AM

    Here we go with another article giving people the selective bits of an argument that they want to hear. How much longer do we have to put up with this bloke? Executive salaries are an old chestnut and this article fails on all levels to give any balance to the argument. The same goes for last weeks ridiculous mulesing article which failed to address many aspects of the debate.
    Now in NZ
    25/02/2013 8:23:09 AM

    What a rubbish article! Why would you even bother to write this non-sense. I am sorry David, you have clearly outed yourself as a populist journo with no real grasp of your subject matter. How about you go and ask those 'poor' shareholders if they would like some recent uni graduate on 40K per year running 'their' company?
    25/02/2013 9:38:16 AM

    I don't understand why top executives get pay rises after achieving deficits for their companies. Wish some one would give me a payrise for the same performance
    25/02/2013 12:20:37 PM

    What a lot of rot. Ag-executives are still the lowest paid ecexutives in the corporate world. They deal with the most risky businesses, limiting factors that are completely out of their control and they manage ag-production systems, finance, people and markets. I suggest we double their income and pay them what they are worth instead of a fraction of it. Then we will keep the best people in the business and not have to rely on the passion of ag-executives for their respective ag-industries, as the main motivating factor driving them to stay in underpaid roles.
    25/02/2013 7:53:22 PM

    Companies overseas in agriculture dwarf Australian ones sometimes by market capitalisation of 100x but as a percentage of turnover/shareholder value our companie executives are doing very well as opposed to shareholders. all pay rises should be subject to proper peformance hurdles. we are not paying peanuts but still getting monkies. McGauchie seems to do very well out of underperforming companies and yes I sometimes think a Uni graduate on 40k a year might do a better job. Having been burned by ag companies I no longer invest in them.
    Bushfire Blonde
    27/02/2013 11:09:31 AM

    Well agribuzz, if our ag-exectutives are the lowest paid in the world, it just goes to show how overpaid they are in the rest of the world. This is one of the main troubles with our economies - too many fat cats.
    johnny woofl
    28/02/2013 4:16:19 PM

    Here we go again, what does money buy? When one man takes out of a company nearly $2 a head and does not 'do' any of the physical work, and the company still makes a loss sounds like our government at the moment. This company should deligate the decisions to the real managers on the 'coal face' and advise them to run these places as thier own. Too many people are not producing in this company, get rid of the dead wood in the men employed after the the cattle leave the front gate.
    Agribuzz with David LeyonhjelmCommentary, news and analysis with agribusiness consultant David Leyonhjelm. Email David at


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