Smurfit pay deals show need for full disclosure

Paddy Galvin and the Institute of Directors got very hot and bothered about the demands from the Irish Association of Investment Managers for full disclosure of directors' remuneration and Mary Harney's statement that if the Stock Exchange didn't do something about disclosure then she would do it for them through legislation.

But if anything points to the necessity of public companies telling their shareholders exactly how much each director is paid, it is this week's annual report from Smurfit which shows that the six executive directors got an average of £1.9 million (€2.41 million) each for their labours last year.

This makes the Smurfit six far and away the highest paid batch of directors among Irish public companies, and makes the average £700,000 (€888,000) paid to CRH directors seem positively paltry in comparison. The difference here is that CRH actually generates a return for its shareholders, while Smurfit shareholders have had to suffer a dismal performance where their shares are worth less than they were worth five years ago. The comparison between these two companies couldn't be more stark.

Not so long ago Smurfit was the biggest company on the Irish stock market. Now it languishes in sixth place behind AIB, Bank of Ireland, Elan, CRH, Irish Life & Permanent and will shortly drop to seventh when Telecom arrives on the market. And it won't take a massive rise in the Kerry share price to send Smurfit down to eighth position.

Smurfit directors have regularly emphasised how cyclical their industry is and how dependent the group is on the price it gets for its key linerboard product. That's all grand - anybody investing in Smurfit should be aware that its cardboard boxes depend on the volume of world industrial production and that when the Far East economies take a dive they need fewer of Smurfit's cardboard boxes.

But what possible reason is there for Smurfit to pay its executive directors such high salaries - totally out of proportion to what is paid in bigger and more profitable Irish public companies. Smurfit might justify their salaries by suggesting that it should be compared with US packaging companies and the salaries its US competitors pay their executives.

The answer to that is that with Smurfit's US operation now parked in Smurfit Stone, most of Smurfit's profits come from its European operations - 78 per cent to be precise. The Smurfit group is a European company and making comparisons with US companies in invalid.

How can Smurfit possibly justify increasing directors' basic salaries by 10 per cent to an average of £530,000. How can a 28 per cent increase in the annual bonus to an average of £680,000 be justified. Did Smurfit's workforce enjoy such lavish increases?

Shareholders have a right to an answer to those questions and to know exactly how much each directors - four of them Smurfit family members - take out of the company in the various bits and pieces that make up "directors' remuneration".

Maybe it's time that the compensation committee comprising non-executive directors Peter Gleeson and Ray MacSharry took a closer look and used a more performance-related approach to how much executive directors are paid. There is nothing wrong with the idea that Smurfit directors' pay should rise or fall in line with earnings per share.

Remember most of this group of executive directors presided over investments like Brent Walker and the diversification by Smurfit - which is supposed to be a packaging company - into hotels and golf courses.