Welcome to Guerdon Associates’ March 2007 newsletter.
In this month’s newsletter we consider whether workload has any influence on the level of remuneration a board chairman receives, identify an important factor that can result in an additional pay premium for CFOs, review a speech by the Chairman of the US Federal Reserve Board on the economic rationale for executive pay increasing at a faster rate than that of other workers, notify you of a new AASB interpretation for share based payments, we explain why Aflac ducked criticism with their adoption of an Australian governance standard, and provide further evidence that Australia's remuneration governance is about right.
We conclude with the latest on executive and director remuneration disclosure updates available on the GuerdonData® on line database and mentions of Guerdon Associates in the news.
Chairman Pay and Workload
Since the introduction of CLERP 9 there has been a significant increase in the workload of most directors and board chairmen.
Over the same period there has been an above average increase in fees. It has been postulated that this remuneration increase is the result of increased workload. If so, some argue, then there should be a difference in board chairman pay according to their workload. Guerdon Associates has researched this, and the results are not what hardworking chairmen may want to hear.
CFO Remuneration – Size is not everything
The level of CFO pay, like most corporate roles, relates strongly to market capitalisation.
That is, the bigger the company the higher the pay. On its own, market capitalisation explains more than half (56%) of the variability in total remuneration. Is there any other major factor that can account for CFO pay levels? While there are several other factors, one stands out.
The Validity of Pay Inequality
A recent speech by US Federal Reserve Chairman, Ben Bernanke, addressed the growing disparity in pay between the top and bottom levels of society.
In economically dispassionate terms, Bernanke summarised the evidence that validates executive pay increases that are out of proportion with increases to other workers in the economy.
AASB Releases Interpretation For AASB 2 – Share Based Payments
The Australian Accounting Standards Board (AASB) released Interpretation 11, applicable to annual reporting periods beginning on or after 1 March 2007.
The interpretation addresses whether certain types of share-based payment transactions with employees (or other suppliers of good and services) should be accounted for as equity-settled or as cash-settled transactions under AASB 2.
Aflac Quacks Under Pressure To Follow Australian Pay Governance Methods
Unlike Australian and UK companies, US companies do not have shareholder votes on executive compensation.
And if shareholders do not like a compensation plan, or any other way a company is run, they have almost no power to change the board. Under pressure from pension funds and other investors, this is about to change.
US bill supports the view that Australia has got it right on executive pay
In the Aflac article we pointed out that the pension funds were exerting significant lobbying pressure on the US congress to introduce a non-binding vote on executive pay.
Last Thursday, House Financial Services Committee Chairman Barney Frank, joined by 21 other members of Congress, introduced legislation to require public companies to include in their annual proxies a non-binding advisory shareholder vote on their executive pay plans.
Latest GuerdonData® Updates
This month’s updates to GuerdonData® include disclosures from the following three companies:
PORTMAN LIMITED, QBE INSURANCE GROUP LIMITED, AND WOODSIDE PETROLEUM 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., “Governance in danger of going a step too far”, Australian Financial Review, 23 February 2007, p 75.
Stuart, D., “The facts about executive remuneration”, Company Director, Vol 23, No 2, March 2007, pp 16-21