Welcome to Guerdon Associates’ March 2006 newsletter.
In this month’s newsletter we look at the rate of increase in non-executive chairman pay, examine the influence private equity firms are having on pay structures globally and in Australia, cite some common examples where public companies are getting it wrong in pay disclosures, and yes, we could not help ourselves but to provide some hopefully helpful comments on the use of relative TSR measures. We conclude with the latest on executive and director remuneration disclosures available on the GuerdonData™ on line database.
Non Executive Chairman Pay Increases On The Conservative Side
It is tough being a non-executive chairman. It is often a case of damned if you do and damned if you don’t, particularly when it comes to seeking board fee increases.
On the one hand, directors are suffering from the increased workload expected of them under CLERP 9, ASX governance requirements, and investor expectations since high profile failures like HIH. On the other is the sensitivity we encounter with most non-executive chairmen who do not want to be seen as feathering their own nests with higher board fees. And to many chairmen, asking for more fees seems counter to their fiduciary duty as a director.
Added to this, in recent years many have relinquished generous retirement benefit arrangements, which may not have been fully compensated by an adjustment to fees.
To read the full article, click on the "More Info" button below.
Executives Taking a Stake. Private Equity Firms Will Be An Influence On Pay In Australia.
There are three private equity firms in the running to buy Coles Myer’s Myer Stores. It is expected each will provide variations of what is fairly standard private equity remuneration for the executives they acquire with the deal.
The basic premise of private equity remuneration is to provide a meaningful stake in the acquired firm as an incentive. The most common form involves facilitating a purchase by the executive team of the stake, often via private equity firm loan facilities, and additional incentives for more equity on hitting the numbers required to make the deal pay.
Private equity is overtaking hedge funds as one of the fastest growing sources and applications of global capital. Its influence is undeniable in mature capital markets like the US, Canada, and the UK. And good performing executives tend to like the experience of becoming rich, operating out of the limelight of public company disclosures, and being rid of the more onerous duties of being a listed company public officer.
To read the full article, click on the "More Info" button below.
Disclosure Compliance – Please Get The Numbers Right!
Maintaining Australia’s only online database of director and executive pay disclosures is an interesting exercise.
We not only get to wonder at the big picture trends of how quickly remuneration is changing in this country, but we also have cause to wonder at the aberrations of minutiae that, we hope, we catch before sending others less familiar with disclosure requirements down the wrong path!
In future newsletters we will get to grips with things directors should be watchful of in reviewing drafts of their remuneration report and AASB 124 disclosures. But for now, we ask auditors and boards to make sure the numbers are in the right place and add up.
To see a few examples, click on "More Info".
Everything’s Relative – Just Why Does It Have To Be TSR!?
This is the second newsletter in a row in which we have a knock at relative TSR. Please do not get us wrong.
It is an excellent measure to apply for determining performance and allocating performance pay to top executives in a large proportion of cases. And we are not just saying that because the very first companies in Australia to apply this did so on the advice of one of our directors (but what can we say – he was younger then). And let’s face facts. In a world that is in danger of becoming too “tick the box” prescriptive, it is the favourite performance measure for some governance and proxy groups.
So the reality for many companies is that there is no choice but relative TSR as a performance measure. But what escapes some boards and their advisers is that there is more than one variety of relative TSR. For example, if you are a big company in a small sector how fair is it that TSR performance be measured against mostly much smaller, more nimble and more volatile companies? Your relative TSR performance will never be near the top, and will more often be near the bottom. This is fact. Our statistical analyses and performance probabilities tell us this every time we encounter it. Relative TSR applied in the traditional way in these cases is both unfair and inappropriate. It would fail the basic test to attract, retain and motivate your executives.
It does not have to be like this. To continue reading, click "More Info".
Latest GuerdonData™ Updates
All GuerdonData™ director and executive remuneration data has been configured to report in the new AASB 124 format. Data will be available in this form later this week.
This will include conversion of historical data (from June 30, 2004) to allow for direct comparison of remuneration in AASB format. We have, of course, retained our standard analytical breakdowns of disclosures for incentive pay and performance research.
Executive and director remuneration data from all ASX 300 companies on GuerdonData™ is available to any subscriber. More information on GuerdonData™, including a link to our 6 minute demo, can be found by clicking on the "More Information" button below.
Guerdon Associates in the News
Kaye, B 2006, ‘$11m Pay to Never Work A Day’, The Daily Telegraph, 22 February, p 9.
Fry, E 2006, “Fast In, Fast Out”, CFO Magazine, February, p 23 – 29.
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