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Australia chiefs’ pay packets hit after office flings

Australia’s corporate world has been warned that executives must disclose workplace romances or risk censure and financial penalties, following a decision by QBE Insurance to slash the pay of its chief executive over an affair. 

This week the insurer’s board cut A$550,000 (US$420,000) from the short-term bonus awarded to John Neal because he failed to notify them in a timely manner of a relationship he was having with his executive assistant. The 52-year-old chief executive began the affair in the second half of 2016 but did not disclose it until earlier this year — a delay that the board decided ran contrary to the company’s code of conduct.

“Both parties agree some recent personal decisions by the CEO have been inconsistent with the board’s expectations,” noted QBE in its annual report — which was an unprecedented disclosure for an Australian company. 

Censuring executives for the potential conflict of interest that can arise from a workplace romance with lower ranking employees is not new. But the use of financial penalties to target such relationships is a relatively new phenomenon, say experts. 

“I have never heard of workplace romance bonus curbs — usually it [is] associated with more consequential unethical behaviour like screwing customers or investors, rather than screwing your personal assistant,” says André Spicer, professor of organisational behaviour at Cass Business School. 

Both parties agree some recent personal decisions by the CEO have been inconsistent with the board’s expectations

“There have been high-profile cases in the US — but [in the UK] people would lose their jobs,” he says.

In 2005, Boeing forced Harry Stonecipher to resign as chief executive when it discovered he was in a consensual relationship with an employee, and there have been numerous recent examples of executives losing their jobs following the uncovering of workplace romances.

There is a trend for remuneration policies to focus more on compliance with a range of ethical and governance standards, as well as delivery of financial results. This has accelerated since the 2008 financial crisis, with UK regulators introducing long “clawback” periods on bankers’ bonuses in a bid to encourage executives to focus on the long-term good of the business, rather than short-term rewards.

Many corporate boards include a range of discretionary elements in their remuneration policies, which are tied to cultural, behavioural performance or environmental targets, rather than financial performance. Codes of conduct and a requirement for executives to disclose workplace relationships are now common practice.

“Proxy advisory firms often agitate that they want the CEO bonus tied to concrete measurable results — [but] good boards always try to retain some element of discretion,” says Julie Garland McLellan, an expert on corporate governance who sits on multiple boards in Australia.

She said this discretion was probably why the QBE board was able to sanction the non-disclosure of a potentially conflict-generating relationship in the case of Mr Neal. His executive assistant, who has since decided to leave QBE, assisted the board on some matters — a situation that could potentially have led to a conflict of interest.

A$100,000

Tim Worner’s bonus cut in 2014 after an extramarital affair

Workplace relationships are relatively common, with a 2014 survey by Vault.com finding 56 per cent of business professionals had experienced one during their career.

Legal experts say companies generally cannot outlaw relationships as it would infringe on the right of employees to a private life. But they have a duty to ensure that no conflict of interest is created by an office romance and that workplaces remain free of discrimination and do not become stressful, hostile environments.

Kamal Farouque, employment lawyer at Maurice Blackburn, says it is often a finely balanced legal question whether a company’s action in probing workplace relationships amount to “unnecessary intrusion”. 

“But being at the top of an organisation in a position where you are supervising more employees does create greater complications,” he says. 

The controversy at QBE follows recent revelations of an extramarital affair involving Channel Seven’s chief executive Tim Worner and a former employee. The case has prompted a public relations crisis for the Australian media company, which cut Mr Worner’s bonus by A$100,000 in 2014 but only disclosed the reduction in December when the affair became public. Mr Worner, Channel Seven and the former employee, Amber Harrison, are engaged in a bitter legal battle designed to prevent further salacious disclosures in the media. 

“The end of an affair is one of the most difficult moments,” says Ms Garland McLellan. “It exposes both parties to the potential danger of immature or vindictive behaviour.”

Via FT