GuerdonNews Volume 2 Number 11

December 2006

Dear [FIRSTNAME],

Welcome to Guerdon Associates’ December 2006 newsletter.

What has been predicted has come to pass. The federal government has released final proposals to amend the disclosure requirements for executive and director remuneration. There is also an update on CEO remuneration levels that we consider is more valid and reliable than recent media reports. We also report on the interesting phenomena associated with “interim” CEOs in times of uncertainty. Another interesting study has emanated from the US that connects unsavoury and widespread remuneration practices to common directors serving on multiple boards. 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.

Unfortunately, we did not have space in this issue to disclose the results of our fascinating study looking into the relationship between CEO pay and company performance. Look for this in our next issue.

This is the last of our monthly newsletters for 2006. Looking back, it has been an eventful year. We take pride in being the first to highlight the impact of major business issues on executive and director reward. Examples include the impact of private equity, vigorous board action to secure shareholder agreement on remuneration matters, the drift to more relevant executive incentive hurdles, the phenomenon of short termism, executive option hedging, director workload, and the many “refinements” of remuneration disclosures being considered or implemented. Being in the front line consulting to boards, management and shareholders has allowed us to better appreciate these issues than most, and we are grateful for our clients’ continuing trust. And to our many newsletter readers who have given us such positive feedback we offer our thanks, and wish you all a safe and happy festive season and a prosperous new year.

CEO Pay Levels

Be aware of broad based news media analyses of executive pay.

It is rare that the news media gets this right. One recent newspaper table of CEO pay assumed all equity received was a long term incentive and added this amount to long term cash to provide a total LTI figure. As most directors and management are aware, equity can be provided as part of the annual bonus, as a salary sacrifice in lieu of cash, or as part of a recruitment bonus. In addition, varying levels of company disclosure compliance require experts to make adjustments to ensure validity and consistency before entering into a database, like GuerdonData®. So, given these issues with recent newspaper reports, what are the true levels of CEO pay?

Treasury Releases Proposals On Remuneration Disclosure Changes

On Thursday November 16 Treasury released proposals from its Corporate and Financial Services Regulation Review.

Treasury acknowledges that duplication exists in executive and director remuneration disclosure requirements between the accounting standards and the Corporations Act 2001. The government proposes to remove duplication by placing the requirements exclusively in the Corporations Act 2001.

Report Links Common Directors To Spread Of Remuneration Abuse

Directors and those that work closely with them know that their experience as a director of one company is often translated into similar practices for other companies where they are a director.

The upside is efficiency and rapid transfer of best practices. But it can also work the other way, with the rapid transfer of bad practices. This has been well demonstrated with a very recent US study from a corporate watchdog group that identifies corporate directors who sit on more than one board as a likely cause of the spread of backdating stock option practices. Regulators are now putting the theory to the test.

Are Interim CEOs a Better Solution Than Toughing It Out?

We came across an interesting study from the US regarding interim CEOs.

Last year, there were nine Interim CEOs in place at major US companies. Notably, more than two-thirds of the 13 identified publicly traded companies led by Interim CEOs since 2003 dramatically outperformed an index of peer companies by a median of 10.8%.

Despite the perception that these CEOs are primarily transient caretakers, analysis reveals that these executives' performances may be underestimated.

Corporate and Financial Services Regulation Review:

Relief for unlisted companies seeking to institute an employee share plan

Offers of securities, including offers of shares under an employee share plan, require the issuing of a “disclosure document” in the form of a prospectus, short form prospectus, profile statement or offer information statement. While exceptions apply, the conditions and complexity have made it tough for unlisted, and particularly small, companies to have an employee share or option plan. This is about to get easier, under changes proposed by the federal government.

Share Based Payment – Accounting Standards Reinterpreted

The Australian Accounting Standards Board has released a new draft interpretation of AASB 2’s treatment of group and treasury share transactions.

The draft interpretation mainly adds clarity to the treatment of on-market share purchases. This interpretation addresses whether certain types of share-based payment transactions with employees (or other suppliers of goods and services) should be accounted for as equity-settled or as cash-settled transactions under AASB 2. For example, the interpretation clarifies that when an entity’s employees are granted rights to the entity’s equity instruments either by the entity or its shareholders, the transactions are accounted for as equity-settled transactions. Click the button below for more information.

Latest GuerdonData® Updates

This month’s updates to GuerdonData® include disclosures from the following 24 companies:

ANTARES ENERGY LIMITED, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, AUSTRALIAN AGRICULTURAL COMPANY LIMITED, BABCOCK & BROWN CAPITAL LIMITED, BANK OF QUEENSLAND LIMITED, BIOTA HOLDINGS LIMITED, ENERGY RESOURCES OF AUSTRALIA LIMITED, ERG LIMITED, FELIX RESOURCES LIMITED, INCITEC PIVOT LIMITED, KEYCORP LIMITED, LION SELECTION GROUP LIMITED, MINERAL DEPOSITS LIMITED, MULTIEMEDIA LIMITED, ORBITAL CORPORATION LIMITED, ORICA LIMITED, REDFLEX HOLDINGS LIMITED, SCHAFFER CORPORATION LIMITED, ST GEORGE BANK LIMITED, STRAITS RESOURCES LIMITED, SUMMIT RESOURCES LIMITED, TEN NETWORK HOLDINGS LIMITED, VIROTEC INTERNATIONAL LIMITED, WESTPAC BANKING CORPORATION

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

“Shareholder Returns”, Company Director, November 2006, p 9.

Hepworth, A 2006, “Big Fish Get Even Bigger In A Shrinking Pool”, Australian Financial Review, 15 November, p 13.

Hooper, N 2006, “Those Who Sweat The Numbers Share The Spoils”, Australian Financial Review, 15 November, p 14.

Hooper, N 2006, “Beware Controlling Interests Lurking Deep In The Detail”, Australian Financial Review, 18 November, p 10.

Kirby, J 2006, “Rewarding Failure Worst Option For Companies”, Sunday Age, 19 November, p 22.

Disclaimer

The information, analysis and opinion in this e-mail and attachments are intended to be for informational purposes only. Analyses are based on information taken from public documents or private surveys, and we do not represent to its accuracy. Guerdon Associates assumes no liability for the use or interpretation of information contained herein. This publication is provided 'as is' without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranties of marketability, fitness for a particular purpose, or non-infringement of third party rights.

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Copyright © 2006 Guerdon Associates

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