Welcome to Guerdon Associates’ September 2006 newsletter.
In this edition, we devote a lot of space to board non-executive chairmen. Do they own shares in the company? Does this relate to company performance? What are the rates of fee increase for chairmen? With the various governance pressures for non-executive directors to own shares, we question whether Australia’s insider trading rules need review in order to make this more effective. We also provide a hint of what to expect with CEO and executive pay in the next couple of years. An interesting case of remuneration abuse revealed by a whistle blower is reported. We provide an update on the government’s review of remuneration disclosure, comparing the interest in this with the interest shown in changes to US disclosure requirements. We finish with the latest on the daily updates on director and executive remuneration disclosures in GuerdonData®, and mentions of Guerdon Associates in the news media.
Non-Executive Chairmen – Do They Have A Stake In Their Companies?
Several well known ASX listed companies have formal policies of delivering a set proportion of director fees as company shares through a shareholder approved director share plan.
Others augment this plan with a feature allowing directors to sacrifice additional cash fees for shares on a tax-deferred basis. Various governance and proxy groups actively support such policies. As a result, more companies are considering introducing these plans.
Very few ASX listed companies have a policy requiring non-executive directors to hold shares. However, there is more active support for companies to adopt these policies from some governance groups. Given this, Guerdon Associates thought it might be appropriate to look at the extent to which non-executive directors hold shares. If the extent of shareholding is already high, such policies may not need to be formalised. To begin, we looked at non-executive board chairmen.
Does Board Chairman Share Ownership Relate To Company Performance?
In the past Guerdon Associates has established that there is a strong relationship between CEO shareholdings and a company’s total shareholder return (TSR) performance.
With various governance and proxy groups supporting director share ownership, we believed it important to verify whether the same relationship applied. We started this quest by first looking at the relationship between non-executive chairman shareholdings and company performance.
The results, especially given the outcomes of our CEO shareholding and company performance research, may surprise some readers.
Board Chairman Remuneration Trends – Take Care With Those Statistics
Would you believe:
• 14% of non-executive chairmen had their remuneration cut from 2004 to 2005
• On average Total Fixed Remuneration (TFR) of chairmen increased by 15% for the same period
• Chairman TFR increased by almost 50% in the energy sector
These findings, while accurate, do not provide a balanced view of recent remuneration trends for non-executive chairmen.
Where’s the passion? Latest on remuneration disclosure changes
The latest from Australia’s Treasury indicates that the specific changes to Corporations Act s300A director and executive remuneration disclosure requirements will not be available in draft form until “late September”, subject to Mr Costello’s approval.
In all, Treasury has received 19 submissions on these matters.
Earnings results suggest a wild ride for executive pay
Up until a few days ago, overall earnings growth for Australian listed companies disclosed so far for the year ended June 30 averaged 26%.
Preliminary indications from GuerdonData® suggest pay increases are also running at a similarly hectic pace. But also, like last years’ results, the way the pay increase is being delivered may give rise to concerns. Some of the increase is being delivered in bonus pay, some via LTI, and a surprising proportion in base pay.
Director Share Ownership – Is It Time For The Rules To Change?
Yesterday it was reported that Treasury was reviewing director penalties that serve to increase directors’ risk aversion.
Treasury also is reviewing insider trading rules in very limited circumstances (e.g. interest rate swaps and foreign exchange forward contracts that are over the counter between just two parties). We think it may be about time for the Treasurer to expand the review of insider trading rules.
Remuneration abuse and whistleblowers
On August 9 the second set of criminal charges was laid against US executives for option backdating.
The complaint provides an interesting insight into an effective whistle blowing policy, and the role of in-house lawyers that could be a model for Australian company secretaries.
Latest GuerdonData® Updates
This month’s updates to GuerdonData® include disclosures from the following five companies:
Austal Limited, Australian Pharmaceutical Industries Limited, Alesco Corporation Limited, Paladin Resources Limited, Perpetual Trustees Australia Limited.
Over each of the next 30 days expect a flood of new data as companies release their annual reports.
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
“CEO Share Ownership”, Company Director Magazine, August 2006, p 9.
Johnston, E 2006, “Bank CEOs Take Rewarding Share of Risk”, Australian Financial Review, 7 August , p 46.
Robinson, M 2006, “Attracting Talent Remains a Taxing Issue”, Australian Financial Review, 22 August, p 63.
“Less Tax For Temporary Residents”, Company Director Magazine, September 2006, p8.