Welcome to Guerdon Associates’ August 2007 newsletter.

We start off this month’s newsletter with a summary of the changes to the ASX Corporate Governance Council’s revised principles, especially as they impact director and executive pay; summarise the aspects of executive remuneration that Moody’s research indicates accentuates risk and impacts their ratings; reveal the disturbing news that Americans write better than Australians (at least insofar as informing shareholders about pay); provide a few pointers for analysing whether pay inequity poses any risk; and lastly provide some aspects for board consideration in relation to change in control pay.

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.

Revised Corporate Governance Principles Released

The ASX Corporate Governance Council has released its revised Corporate Governance Principles and Recommendations late on Thursday 2 August 2007.

This is the first revision of the Council’s Corporate Governance Principles since they were issued in March 2003.

The aspects directly impacting remuneration are restricted to anti option hedging policies and disclosures, and issues of options to non-director executives.

We summarise the changes, highlighting those that impact executive and director remuneration, in this article.

When it comes to remuneration reports and plain written English, Australian companies could do better

Guerdon Associates assessed the readability of the remuneration reports of the ASX 50 companies compared to 40 prominent US companies already identified by the SEC as having unreadable compensation disclosures.

The results aren’t inspiring: on average, Australian companies’ remuneration reports are even harder to read than US compensation disclosures.

Moody’s analyses executive pay for credit risk

Boards and management may be unaware that their credit rating from Moody’s could take into account risk associated with executive compensation.

Contrarily, some of the things Moody’s are wary about are advocated as good practice in Australia and the UK, and increasingly now in the US and Canada. This includes using Total Shareholder Return (TSR) and Earnings Per Share (EPS) growth as performance metrics for long term incentives (LTIs).

Executive Pay Equity – A Few Pointers

In prior newsletters we have covered research that the absence of an equitable distribution of pay at executive levels can reflect higher corporate risk.

Reasons why boards should apply internal pay equity could also include:

1. It is fair
2. It is economical
3. It mitigates market biases
4. It leads to better employee relations and a stronger company

To start the internal pay process, boards should review all the components of remuneration. It is particularly important to break out the equity and post employment components, because at many companies it is these forms of compensation that are creating the greatest disparities.

Change in Control Payments and Private Equity

With the chief executive’s assistance, a private equity consortium succeeds in a takeover of a public company.

The executive pockets a year’s pay plus the proceeds from accelerated options that vested with the change in control. The options will, of course, be considerably in the money with the takeover premium. The next day he/she turns up at the same company on a new package that has the potential to be several times richer than his/her old package. Is this wrong? Should there be a variation in contracted payments to recognise the windfall and possible self-interest if a change of control is by private equity?

Latest GuerdonData® Updates

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

ADITYA BIRLA MINERALS LIMITED, JAMES HARDIE INDUSTRIES NV, METCASH 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

“Simplicity pays off for private equity”, The Boardroom Report, Volume 5, Issue 11, 3 July 2007,p.4
“From the corner office down to the shop floor”, Michael Robinson, Australian Financial Review, July 7-8, p. 63
“A rarefied playing field”, James Kirby, The Age, 9 July 2007