Welcome to Guerdon Associates’ June 2007 newsletter.

In this month’s newsletter we raise the issue of pay equity in executive ranks and how this can present company risk issues; wonder how long board remuneration adviser independence can remain as a sleeper issue in Australia, given its prominence overseas; report on how the federal government's "simpler" regulatory package impacts director pay approvals, employee share plans, and disclosures; assess the alarming degree of executive pay disclosure non-compliance among our largest companies; and attempt to ease your (and our) qualms over the rate of executive pay inflation.

We conclude with the latest executive and director remuneration disclosure updates available on the GuerdonData® on line database, as well as the month's news media featuring Guerdon Associates.

Pay Imbalances Increase Company Risk

As if boards do not have enough to deal with – should they add to the list the level of pay imbalance in their companies? Unfortunately, purely from a risk management perspective, it seems that they should.

Over 100 years ago the bankers’ banker, J. Pierpont Morgan, refused to loan money to any company where the CEO’s pay was 50% greater than the next highest in the company. His rationale was that he did not trust any CEO who thought too highly of himself and paid himself accordingly. Today, Moody’s company ratings now take into account the executive team’s internal equity. Too big a gap between the top person and the next most highly paid indicates higher risk, assuming that there is no successor with the breadth of experience indicated by the pay levels to take over in the event of CEO termination.

How Long Will Remuneration Committee Adviser Independence Remain A Sleeper Issue In Australia?

A Checklist for Australian Boards

Conflicts of interest for remuneration advisers are big news offshore. We provide a checklist for Australian boards.

Conflicts of interest for auditors have been vigorously, and to a large extent successfully, tackled in the US and throughout the OECD countries since the Enron collapse and Arthur Anderson dissolution. The means varied, from outright banning of certain services to audit clients in the US, to softer but equally effective disclosure requirements in Australia, the UK and elsewhere. Now it is the remuneration advisers’ turn.

Simpler regulatory package impacts pay disclosures, director fee approval and unlisted company share plans

On 25 May 2007 the federal government released the Simpler Regulatory System Bill package.

The Bill will cover a range of regulatory areas such as financial services, financial reporting, takeovers, auditor independence, corporate governance and fundraising, reporting requirements for executive remuneration and fundraising requirements for employee share schemes.

Disclosures and Compliance – What Compliance?

The law may be an ass, but it is still the law.

This applies to Australia’s disclosure laws and regulations, as it does for other laws. Why is it then that there is still such a poor level of compliance? Just ten percent of the ASX 50 complied with one element of the law.

Executive Pay Inflation Rates

Executive pay inflation is something that worries us.

We are acutely aware, as are the board chairmen and remuneration committees we deal with, of the intense scrutiny and criticism levelled at the rate executive remuneration is increasing. Twenty-nine percent in 2004, 16.5% in 2005 and 11.5% last year: all considerably above the CPI and AWE rates. Our concerns are exacerbated when we acknowledge the role the remuneration consultants have in increasing executive pay. We want to make sure that everyone lifts their game, including our competitors, to apply the same rigour we do in estimating what these increases may be.

Latest GuerdonData® Updates

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

AUSTAR UNITED COMMUNICATIONS LIMITED,COMPASS RESOURCES NL,HIGHLANDS PACIFIC LIMITED,PROMINA GROUP LIMITED,SINO GOLD MINING LIMITED,SIGMA PHARMACEUTICALS LIMITED,BABCOCK & BROWN LIMITED,COLORADO GROUP LIMITED,MACQUARIE BANK 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

“Focus-salary packages: Good money at the top”, Tania Bawden, Adelaide Advertiser, 28 April 2007, p. E39
“Private model may pay in public”, Michael Robinson, The Australian Financial Review, 16 May 2007, p. 63
“Payday bender?”, Olga Galacho, Herald-Sun, 19 May 2007
“Fat cats just get fatter – Public outrage unlikely to change salary rules”, Olga Galacho, The Courier Mail, 19 May 2007