The Sydney Morning Herald  Vanessa Desloires  October 3, 2014

‘Bonanza for executives’: George Savvides’s pay packet is set to swell from $1.2m to over $5m when Medibank floats this year. Photo: Mal Fairclough

How do you get a $4 million pay rise? Ask George Savvides.

The 58-year old trained engineer will move from being one of Australia’s highest paid public servants to a chief executive when Medibank floats this year, and his pay packet is expected to soar around 400 per cent.

The float, poised to fetch about $4 billion, could mean that Medibank will land in the ASX 50.

Solomon ­Trujillo’s Telstra Former CEO
Former Telstra chief Solomon ­Trujillo’s pay packet grew from $8.7 million in the pre-privatised 2006 fiscal year to $11.8 million in 2007. Photo: Erin Jonasson

That could also justify Mr Savvides pitching his salary – which at the moment is comparatively humble at $1.2 million – to between $2 million and $8 million, said Ulysses Chioatto, former executive director and head of research, Australia and New Zealand, at Institutional Shareholder Services.

“George Savvides can expect to have his pay packet match private sector executives for similar size companies,” dr Chioatto said.

He said Mr Savvides would probably secure a package of about $5 million for the company’s first year on the boards.

“However, the market scrutiny will be intense with both local and global funds asking very hard questions around performance and short-term key performance indicators for any proposed bonuses,” he said.

Martin Lawrence, director of ­government advisory firm Ownership Matters, said Mr Savvides’ salary boost should not come as a surprise.

Lucrative salaries

“The track record for privatisations are that they are generally a bonanza for management,” he said.

“In the most recent privatisation we have seen, which was Aurizon, the total cost of the board of managers in public ownership was $5.2 million,” he said.

“The total cost for the 2012 financial year, the first full year since privatisation, was $19 million,” Mr Lawrence said.

Fellow health insurer NIB’s share price has appreciate 84 per cent since its listing in 2007, providing stellar returns to shareholders and justifying bonuses and long-term incentives.

After rail company QR National privatised in 2010, chief executive Lance Hockridge’s salary soared from $1.1 million to almost $4.1 million within a year. His salary package is now worth $5.1 million.

NIB chief executive Mark Fitzgibbon earns about $1.2 million, but his ­company is significantly smaller than Medibank, with a market capitalisation of about $1 billion and 900,000 policy holders, compared with Medibank’s 3.7 million.

Of the most lucrative salaries in the healthcare industry, Ramsay Healthcare chief executive Christopher Rex comes out on top, earning $8.3 million.

Creation of millionaire bosses

Back in the 1990s, a slew of privatisations created many millionaire chief executives.

In 1996 in Qantas’s first full listed year, chief executive James Strong commanded $1.37 million, and by 1997 this had soared to $1.7 million. At CSL, Brian Mcnamee commanded about $280,000 in 1993 before the ­company listed.

By 1995, he earned up to $409,000. The number is comparatively modest but his $19.1 million send-off last year indicates the value of his performance from shareholders.

Former Telstra chief Solomon ­Trujillo’s pay packet grew from $8.7 million in the pre-privatised 2006 fiscal year to $11.8 million in 2007.

Dr Chioatto said Mr Trujillo’s share-heavy salary was due more to his US background than local market practice.

But the numbers for ASX leaders are stark in comparison to our top bureaucrats.

Prime Minister Tony Abbott’s salary sits at a relatively modest $500,000, while Secretary of Prime Minister and Cabinet Ian Watt receives $884,800.

Mr Lawrence said Mr Savvidas’ role, while not changing in name, would still bear far more responsibility, while chief financial officer Paul Koppelman’s job descriptions will change “immeasurably”.

“[They] are going to be much more challenging, because they’re going to have to deal with a lot more shareholders,” he said.

Source: The Australian Financial Review