GuerdonNews® Volume 3 Number 9

October 2007

Dear [FIRSTNAME],

Welcome to Guerdon Associates’ October 2007 newsletter.

This month we look at the impact external recruits have on levels of CEO remuneration, the board remuneration committee’s role, the contentious influence proxy advisory firms have on executive remuneration, and assess the influence that remuneration report non-binding votes have on the prospects of better disclosure compliance.

We conclude with the latest on executive and director remuneration disclosure updates available on the GuerdonData® on line database.

The influence of proxy advisory firms on executive remuneration

Many Australian board directors are wary of proxy advisory firms.

Listed companies with a greater than 10% negative vote on their remuneration reports tend to identify proxy advisory firms as the main source of negative sentiment contributing to the less than satisfactory result.

But boards have to face up to the fact that the proxy firms wield considerable influence, and that this will continue. Pragmatically, the best board response is to work on either addressing the issues that investors do not like in regard to remuneration, and/or improving disclosures and other communications to better inform shareholders why the remuneration arrangements are in their best interests.

External CEO recruitment impacts remuneration levels

Various studies have indicated that the proportion of CEOs being hired from outside relative to those being promoted from inside companies is increasing. This has had an impact on CEO remuneration.

According to a new study by Kevin Murphy of the University of Southern California and Ján Zábojnik of Queen's University in Canada, external CEO hires made 22 percent more than executives promoted internally during the 1990s. At US S&P 500 companies in 2005, external CEOs earned a median pay of $13 million, while internal hires earned $5 million.

The study finds that the increase in external CEO recruitment over the past three decades can be attributed to higher value being placed on "general managerial ability" rather than "firm-specific managerial capital".

Remuneration Committee roles and responsibilities checklist

The role of the remuneration committee is to have an appropriate reward policy that attracts and motivates executives to achieve the long-term interests of shareholders.

In order to be effective, the committee needs both to determine the organisation’s general policy on the remuneration of key management personnel (executives and directors) and specific remuneration packages for each executive director.

In this article we provide some pointers for the remuneration committee.

Australian “self-regulation” a better way to improve performance measure disclosure compliance?

In Australia listed companies are required to disclose the performance conditions used in executive incentive plans and explain why the performance condition was chosen and how it is assessed (Corporations Act s.300A(1)(ba)).

While most Australian listed companies provide detailed information on long term incentives, few disclose anything like as much detail for short term incentives, generally without explanation as to why this detail is lacking.

To date, the Australian corporate regulator, ASIC, has apparently preferred to leave enforcement of disclosure requirements to shareholders via their non-binding vote on the directors’ remuneration report. This is not withstanding ASIC Chairman, Mr Tony D’Aloisio, indicating that simpler and more targeted disclosure is one of ASIC’s current priorities for retail investors.

Latest GuerdonData® Updates

This month’s updates to GuerdonData® include disclosures from the following 59 companies:

ADITYA BIRLA MINERALS LIMITED, AMCOR LIMITED, AMADEUS ENERGY LIMITED, AQUARIUS PLATINUM LIMITED, ARB CORPORATION LIMITED, BILLABONG INTERNATIONAL LIMITED, BABCOCK & BROWN INFRASTRUCTURE GROUP, BENDIGO MINING LIMITED, BORAL LIMITED, BOOM LOGISTICS LIMITED, BOLNISI GOLD NL, BIOTA HOLDINGS LIMITED, COMMONWEALTH BANK OF AUSTRALIA, CENTRO RETAIL GROUP, CONNECTEAST GROUP, CENTENNIAL COAL COMPANY LIMITED, CIRCADIAN TECHNOLOGIES LIMITED, CITY PACIFIC LIMITED, COLLECTION HOUSE LIMITED, CLOUGH LIMITED, CRANE GROUP LIMITED, CSL LIMITED, CONSOLIDATED MINERALS LIMITED, CORPORATE EXPRESS AUSTRALIA LIMITED, FUTURIS CORPORATION LIMITED, FOSTER'S GROUP LIMITED, GLOBE INTERNATIONAL LIMITED, GUD HOLDINGS LIMITED, GWA INTERNATIONAL LIMITED, HILLS INDUSTRIES LIMITED, HEALTHSCOPE LIMITED, HASTIE GROUP LIMITED, INSURANCE AUSTRALIA GROUP LIMITED, INSTITUTE OF DRUG TECHNOLOGY AUSTRALIA LIMITED, INFOMEDIA LIMITED, JUBILEE MINES NL, JAMES HARDIE INDUSTRIES NV, KRESTA HOLDINGS LIMITED, KEYCORP LIMITED, MAXITRANS INDUSTRIES LIMITED, NYLEX LIMITED, ORBITAL CORPORATION LIMITED, PACIFIC BRANDS LIMITED, PALADIN RESOURCES LIMITED, PERILYA LIMITED, PLATINUM CAPITAL LIMITED, PMP LIMITED, QANTAS AIRWAYS LIMITED, RESOURCE PACIFIC HOLDINGS LIMITED, SAI GLOBAL LIMITED, SOUTHERN CROSS BROADCASTING (AUSTRALIA) LIMITED, SENETAS CORPORATION LIMITED, STOCKLAND, SIRTEX MEDICAL LIMITED, SUPER CHEAP AUTO GROUP LIMITED, TECHNOLOGY ONE LIMITED, TOLL HOLDINGS LIMITED, WOTIF.COM HOLDINGS LIMITED, WATTYL 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.

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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