Base salary, superannuation, bonuses, executive share schemes, short and long term share grants and various other benefits are all remuneration matters that need to be carefully considered and quantified before changing employment.
More importantly the value of each needs to be accurately calculated and compared to ensure you know what you’ve got, what you stand to gain and perhaps most importantly, what you could lose when changing employers. In this article we explore the key remuneration matters you need to consider when changing employers.
To suggest mining and resources remuneration is multifaceted and complex is something of an enormous understatement.
In fact, for some high earning mining and resources business leaders, remaining abreast of the true value of their remuneration requires considerable time and effort.
In our role as financial advisers, Brett Cribb a former mining engineer with direct remuneration experience and myself an experienced financial adviser and ESS strategist, we are fairly regularly called upon to quantify existing remuneration arrangements and compare its value with remuneration packages offered by prospective employers.
Generally there are SIX matters that can and should be compared in an apples-for-apples manner. There will be ‘oranges’ too, often exclusive to a company that must also be considered, however the overall goal is to ensure any new role you may be considering adds financial benefit or at the very least equals your current remuneration and avoids taking any backward steps financially.
1: Base Salary
Base salary comparisons are usually straight forward, however close consideration should be given to any differences in compensation arrangements. It’s important know when salaries are reviewed each year, as this may be different from your current employer, and provides an opportunity for any future increase in your base salary to be captured for long term benefits. (Click here for further reading about using job promotions for your financial advantage.)
2: Cash Bonus (Short Term Incentive)
Cash bonuses or short term incentives are commonly calculated as a percentage of salary with a multiplier based on performance of your business unit and the overall company. This too is a fairly straight forward comparison of benefits offered by your existing and proposed employers.
3: Superannuation Contributions
There is a vast array of superannuation contribution arrangements available which can include more favourable benefits for seniority or other arrangements specific to an organisation.
For example, while employers are only legally obliged to pay super contributions on the maximum super contributions base, some employers pay the statutory rate on all salary earned, and some pay a higher than statutory rate on all salary earned while for some employers pay on cash bonuses too.
On the latter, it will be important to clarify whether or not super contributions are paid on cash bonuses or on your base salary solely and compare it to the value of your current arrangements.
Note the current statutory super contribution rate as of 1 July 2023 is 11.00%. From 1 July 2024 it will increase to 11.50% and from 1 July 2025 will be 12.00%.
Should your current or future employer offer a higher rate of contributions than the statutory super contribution rate, the dollar value you may be set to gain now (or lose) may be less valuable in future years.
4: Share Grants
Short Term Incentive:
Depending on the business and seniority, you may receive share grants as part of your short term incentive. Commonly for high seniority roles, there is a proportional split of your short term incentive being cash and shares.
If you currently have, or will have, a short term incentive in the form of shares with a new employer, it’s important to understand the percentages of the proportional split, what your vesting timeframe is, and whether you will be subjected to regular trading blackout periods.
Long Term Incentive:
In executive positions at listed companies, you’re likely to receive your long term incentive in the form of shares, rights or options in the company employing you.
The number of shares, rights or options can vary significantly from company to company. The key is understanding what you will be allocated and comparing your current arrangements against the proposed remuneration structure.
The most common share grants for long term incentives are either a management share plan or a performance share plan.
Management share awards are plans which only have a time-based vesting condition, whereby if you remain employed at the same company, the shares vest to you in full at their set vesting date (commonly 3 years from being granted to you).
Performance share awards are more common for positions of greater seniority, although some employers offer only these awards to their executives.
In addition to a time-based vesting condition, these awards also have performance criteria which need to be met for the award to vest.
Performance criteria commonly includes shareholder return measures, performance peer ranking for companies in similar industries and sustainability targets. Each performance award is unique and can now include non-financial metrics such as ESG hurdles. Outcomes of performance criteria can range from no shares vesting, a portion of shares vesting or an upward multiple of shares vesting – it all depends on the specific award on offer to you.
While both awards carry the risk of share price movements from grant to vest (and beyond), it’s imperative to understand the differences, particularly if you currently receive a management share award and your future employer only offers performance share awards.
If you’re unsure as to whether any proposed Long Term Incentive award has performance metrics, the question you should be asking is: “Does performance criteria apply to the share awards I’m being offered”.
5: Matching Share Awards
These schemes commonly operate whereby post-tax pay roll deductions are used to purchase shares in your employer company, which are then matched by the company with a future vesting period.
While this is a lesser benefit than long term incentives, some employers offer such schemes, and they too should be considered in any future offer of employment and any potential benefits lost when changing employers.
6: Change of Employer with Unvested Awards
Typically if you have unvested share awards, your departure on resignation from a company will result in them being forfeited.
This can vary from award to award, so it’s important to understand the plan rules for each of your awards so you may be well informed of any consequences (or disadvantages) before making your decision to resign. This may mean it could be beneficial to hold off resigning until after the vesting of awards (and payment of cash bonuses).
For some executive roles, a prospective employer may consider offering a similar one-off share scheme award to an incoming employee to account for any loss of shares they may have had with their prior company. This often forms part of the remuneration negotiation process, with prospective employers requesting proof of any existing awards before agreeing to replace them.
Next Steps
When considering your next career move, it’s imperative to take the time to fully understand the extent and value of your current remuneration benefits AND the extent and value of benefits offered by a prospective employer.
In particular, seek clarification on how your current employee share scheme awards work and its financial value in comparison to a prospective future employer’s share scheme.
Informed decision making and negotiating remuneration arrangements very often rely on good record keeping. This typically includes current details of your current employment contract and superannuation arrangements, allowances and employee share scheme awards and other benefits such as motor vehicle allowances, travel and accommodation allowances or remote area allowances.
While reviewing and comparing renumeration has complexity, more often it’s so time consuming senior executives simply can’t give it the attention such decision making warrants.
If you could benefit from advice regarding remuneration or assistance reviewing and quantifying your remuneration package for employment negotiations, please contact James Marshall on +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au
To learn more about James, visit this link.
Resources Unearthed is a solutions hub that provides integrated financial, legal, property, accounting, tax and business advisory services for executives, professionals and business owners in the mining and resources sectors.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.
*Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.
