Babcock & Brown have taken the art of incentive payments to a new level.
Bonus payments for senior executives often reach two thirds of total rewards, or possibly for the occasional individual. In 2006, however, Babcock appears to have established a new benchmark of at least 90% for its senior executives – and recruiters say other employers are taking note.
The company’s annual report reveals that all the investment bank’s senior executives received a base pay of around AU$365k last year. And from there, the rewards were based on the performance of their respective business units. For CEO Phil Green, this meant that base pay accounted for just 2.3% of his total package of AU$17m. For the head of corporate finance, Robert Topfer, it was 2.6% of his package of AU$15m. And for the head of infrastructure, Peter Hofbauer, it was 2.7% of his package of AU$14.6m.
Babcock’s incentives programme is complex – and cunning. It’s designed with talent retention in mind. Of the short-term bonuses, which themselves account for around 80% of the total package, one quarter of these are deferred payments from previous years. The company has a healthy equity reward scheme, which vests shares up to four years out for their top executives.
Recruiters say while the investment banking industry is generally heavily dependent on bonuses to reward high-achieving executives, Babcock seems to have taken the proportion to new heights.
Little wonder that Green reports that turnover at executive level is “pretty much non-existent”. Even across the company, turnover is less than 3%. Babcock employs about 1,000 people – a quarter of them hired in the past year as its business has expanded rapidly – and intends to hire about 300 more in 2007.