Tuesday, August 21, 2012

Don't dream it's over: Reserve Bank upbeat on economy

By Business editor Peter Ryan
The Australian dollar surges on the RBA's bullish outlook 
Source: Bloomberg  

The Reserve Bank has forecast that the resources boom will continue for the next few years, countering suggestions that it has already peaked.

In the minutes from its August meeting released today, the RBA said resource investment would "continue rapidly over the next year or so, broadly in line with expectations."

However, in a reality check the RBA has pointed to the boom's "eventual decline", but expects the fallout to be offset in "a ramp-up in resource exports" as projects are completed.

The RBA has also signalled a recovery in non-mining parts of the economy which have been hurt by the multi-speed nature of resource investment.

The minutes refer to "a gradual strengthening in some parts of the non-resource economy that had been relatively weak."

But the RBA did not put a time frame on any strengthening noting that "there was a good deal of uncertainty surrounding the forecast timing of these shifts."

The outlook for continuing resource investment and a period of low inflation saw the RBA leave the cash rate on hold at 3.5 per cent when the board last met on August 7.

RBA board members were told that underlying inflation was around the bottom of the 2-3 percent target range and that it would be temporarily pushed higher by the introduction of the carbon price.

Some economists believe the cash rate could be left steady for the rest of the year after the RBA noted the cash rate level "remained appropriate."

On continuing tensions about the high value of the Australian dollar, the RBA said it had been pushed higher in part by a decline in the Euro and Australian currency purchases by the Swiss National Bank.

The RBA noted the Libor fixing scandal and the level of any impact here, saying "Australian banks' net exposures were low" because local financial products were benchmarked against domestic bank bill rates.

As outlined in earlier statements, the RBA remained alert but not alarmed about the debt crisis in Europe and said that "escalating concerns" had "weighed on confidence."

While some European economies were improving, members were told that "further significant economic adjustment seems necessary and the challenges ahead for the euro remained substantial."

The Reserve Bank board holds its next meeting on Tuesday September 4.

You can follow Peter Ryan on Twitter @Peter_F_Ryan

Monday, August 20, 2012

Qantas boss latest to knock back bonus

By Business editor Peter Ryan

The head of Qantas has become the latest chief executive to succumb to investor pressure by deciding not to accept a bonus this year.

The airline has confirmed that Alan Joyce will not be receiving a bonus when the company announces its profit results later this week.

Mr Joyce joins Marius Kloppers of BHP Billiton, Tom Albanese of Rio Tinto and Paul O'Malley of BlueScope Steel in forgoing big bonuses in the face of declining fortunes for their shareholders.

The body representing many small investors wants CEOs to go further and take actual pay cuts.

"In the current reporting season, where the companies haven't achieved their targets and the executives really haven't really achieved their results for shareholders, then they must certainly hand back their bonuses," said the Australian Shareholders Association's chief executive Vas Kolessnikoff.

Listen to the interview with Vas Kolessnikoff broadcast on AM.

"I suspect the issue, however, is bigger than just handing back bonuses. It's more the fact that the contracts allow the bonuses to be paid in the first place when the results haven't been achieved for shareholders."

Mr Kolessnikoff says the non-payment on bonuses should not depend on an expression of goodwill by the executives and the board, but be automatic when the performance standards for the bonus have not been met.

"Last year, there were a number of chief executives who received bonuses or incentive payments when the companies lost money or underperformed and share prices went through the floor," he observed.

"These things this year are pretty much the same, and these shareholders haven't achieved the results and the executives this year are handing back the bonuses. I think it's a short term thing."

Mr Koslessnikoff says his members expect executive base pay rates to more closely reflect both the size and performance of the relevant business.

"One of my favourite sayings is, if you turn a big business into a small business, you should cut the excesses all the way back to small business rates," he added.

"So we've seen a lot of companies this year where boards and executives have cut their bonuses but they haven't really cut their pays and, the question is, what happens next year?"

Mr Kolessnikoff says the recent track record of board and executive remuneration does not bode well for future restraint.

"One thing that we've seen across the board over the last 10 years is board and executive remuneration really go completely through the roof and out-of-step with the rest of society," he observed.

"We saw the chairman of Rio, Jan du Plessis, make the comment that executive remuneration has got out of hand and not really producing results for shareholders. That, I think, is a very poignant comment."

However, the Shareholders Association is still not keen to see the government step in to limit executive pay.

"You don't want to see governments regulating pays. It's something that you want to see the market regulate, and you want to see the boards and executives do the right thing," he said.

"I suspect that if, over time, this is not to be seen that there will become increasing pressure for governments to do something."

You can follow Peter Ryan on Twitter @Peter_F_Ryan