The sorry state of executive pay (from a shareholder’s perspective) has been exemplified by the press coverage allocated to the Wesfarmers decision to freeze the pay and cut the bonuses of its top executives.

In a letter to staff, Wesfarmers managing director, Richard Goyder, stated that, “the decision to freeze salaries at 2008 levels for the group’s most senior executive managers, as well as not pay the individual discretionary component of their annual bonuses this year, is a responsible one given the current economic climate.”

Over past three decades, executives and their well-paid ‘independent’ remuneration consultants have undertaken a concerted push to align executives’ pay to the performance of their companies. UK figures indicate that in 1979, executives received around 10 times the average wages as remuneration. In 2006, that figure had increased to 98 times average wages. In Australia, even during the depths of a share-market collapse, Australian CEOs managed to increase earnings by approximately five percent last year.

Back to Wesfarmers, last year, Goyder received remuneration of $5.06 million. In 2007 he received $5.3 million. Goyder also received a significant increased in “fixed pay” last year, with his cash pay rising from $2.2 to $2.7 million. During that time, Wesfarmers share price slumped from $45 in June 2007 to only $15 in December 2008. If Wesfarmers truly sought to “align” the remuneration of executives with shareholders, presumably, that would result in Goyder’s remuneration falling in some sort of concert with the share price (which has recovered to $21.40, but is still down more than 53% from its high).

Further, the decision to freeze Goyder’s fixed salary at 2008 levels means that the Wesfarmers chief is receiving 22% more fixed pay than in 2007, despite the company’s return on equity and share price slumping after its badly-timed and overpriced acquisition of Coles.

Wesfarmers’ remuneration report was roundly rejected by the company’s shareholders last year, with 48.8% of shareholders voting against or abstaining from voting on the resolution (largely based on the company’s refusal to adequately disclose return-on-equity hurdles relating to its long-term incentive scheme). Given the company’s relatively poor performance, it remains to be seen whether the token gesture and carefully worded press-releases will be enough to appease disgruntled Wesfarmers shareholders.