Welcome to Guerdon Associates’ June 2006 newsletter.

In this month’s newsletter we discount pay as a reason for large Australian companies not to have more diverse “international” boards, briefly review budget implications for board and executive remuneration, flag some more regulatory changes being considered for remuneration disclosures, pass on a titbit regarding expectations for board “value added” time, warn that the Disney directors’ "incompetence" defence in the Ovitz overpayment case may not be applicable to Australian directors, suggest that incentive "clawback" provisions are missing from current plan rules, point out that some option exercise pricing practices may need checking, and provide a warning to Australian multinationals in the EU with employee or executive share plans regarding Eurocratic prospectus requirements. We conclude with the latest on executive and director remuneration disclosure updates available in the GuerdonData® on line database.

As usual, we have far more news than we can squeeze into one issue, and have deferred several items to future issues. In particular, look out for next month’s report on some fascinating and revealing research into CEO share ownership levels and company performance.

Internationalising The Board? Pay Levels Not The Issue For Big Aussies

Many Australian companies have outgrown their domestic markets. They need to become international.

Some are already there. Yet many boards shy away from seeking greater international diversity on their boards. Pay and the “tyranny of distance” are the most cited issues blocking international director nominations. While we cannot comment authoritatively on the “tyranny of distance” issue, we can put to bed the pay myth.

Remuneration Reports and Disclosure – Government To Change Requirements (Again!)

Australia’s Federal Treasury released a discussion paper for a new round of corporate law economic reform.

Expect more change to reward disclosure requirements. However, this time it is by and large for the better.

Federal Budget – Opportunity or Pandora’s Box?

The federal budget fixes or alleviates many remuneration complexities and anomalies. It also changes superannuation rules again.

We have no doubt boards will be receiving a lot of information from management as to how remuneration should change as a result. But, despite “simplification”, nothing is as simple as it seems.

Disney, Ovitz, and Australian Board Governance

The importance of company directors mastering effective corporate governance, as well as understanding the board’s legal obligations, has been understated by last year’s decision of the US Delaware Court of Chancery in the Walt Disney Company case.

The court held that there had been no breach of fiduciary duty even though the Disney board went “spectacularly” awry in awarding a severance package estimated at US$140 million.

Directors should be wary of translating this outcome to Australian board pay decisions that result in excessive payment.

Option Backdating – Australian Directors Should Keep An Eye Out For This One

Make no bones about it, if a company is granting options today when its shares are at $2, but it says, 'We'll put a price of $1 on each option and say we granted them a month ago,' that is stealing.

Australian Multinationals With Global Share Plans Could Be Ensnared By Eurocracy

Australian companies providing share purchase or equity incentive plans in one or more of the 25 European Union countries, need to take care this year.

In the finest Eurocratic tradition, a new EU directive will be interpreted and implemented in 25 different ways that may make employee alignment with shareholders that much more difficult.

IFRS, Re-stating Results, and Bonuses

The complexity of IFRS and additional volatility in disclosed financial results has often resulted in the need to correct results later. But too often executive bonuses that were paid out remain that way.

Director Time for Value Added?

At an Australian Institute of Company Directors (AICD) luncheon in Sydney on May 16 David Beatty OBE, a well regarded Canadian governance leader, cited interesting research.

It indicated that of the time Canadian directors dedicated to a board, over 70% was for routine and oversight matters, while less than 30% was spent on value adding activities of talent and strategy. This is in accord with similar proportions we see in Australia.

Latest GuerdonData® Updates

This month’s updates to GuerdonData® include disclosures from the following companies:

Macquarie Bank Limited, CFS Gandel Retail Trust Limited, and Rinker Grooup Limited.

Executive and director remuneration data from all ASX 300 companies on GuerdonData® is available to any subscriber. Visit our website for more information on GuerdonData®.

Assess how easily you can find out director and executive pay information by viewing our 6 minute demo. Click on the “More Info” button below.

Guerdon Associates in the News

Robinson, M 2006, “The pitfalls of calculating remuneration”, Australian Financial Review, 29 May, p 63.