Welcome to Guerdon Associates’ February 2008 newsletter.
In this first issue of 2008 we analyse non-executive director pay increases, provide you with access to the manual that guides institutional investors on executive pay, summarise a US Congressional committee’s findings on executive pay increases and the use of conflicted consultants, note proposed amendments to AASB 2 and provide a remuneration committee checklist for finding a balance in pay matters.
We conclude with the latest on executive and director remuneration disclosure updates available on the GuerdonData® on line database and references to Guerdon Associates in the media.
Non Executive Director Pay Trends
As we begin calendar 2008 in earnest, many boards are wondering whether another review of non-executive director (NED) pay is in order.
It seems to many boards that NED pay increases are accelerating.
They are right.
Whereas it used to be the norm for the board to review director fees every few years, the gap between reviews is narrowing. Many boards are now reviewing NED fees annually. A quick review of the rate of change in NED pay may assist boards to consider whether they should review director pay this year.
The median 2007 change in NED Total Compensation (TC) was 7.3%. The average was skewed significantly higher at 21%.
CFA Institute Releases Executive Pay Manual for Investors
The CFA Institute Centre for Financial Market Integrity administers the highly regarded Chartered Financial Analyst qualification. This qualification is fast becoming the de facto requirement for finance professionals.
The Institute is dedicated to promoting fair and open markets on behalf of its more than 92,000 investment professional members in 135 countries and acts as an advocate for investor protection and high professional standards. The Institute can therefore be expected to have a considerable influence on institutional investment management and how institutions may vote on remuneration matters.
The Institute has recently released its global manual, The Compensation of Senior Executives at Listed Companies: A Manual for Investors, which provides a comprehensive examination of executive remuneration and associated risks for investors.
US Congressional Committee Finds Conflicted Consulting Firms Contribute to High Pay
Compensation consultants whose firms engage in other types of business with the same client contribute to skyrocketing executive pay, according to Rep. Henry Waxman, a Californian Democrat and chairman of the House Oversight and Government Reform Committe
He released a nine-page report written by the panel’s majority staff that outlines “pervasive” conflicts of interest and asserts that the more conflicts there are, the higher a CEO’s pay will be.
The report, which was the centrepiece of a committee hearing, says 113 of the Fortune 250 companies used consulting firms for pay guidance as well as other services in 2006. Fees for compensation work averaged $220,000, while those for other projects averaged $2.3 million. That is, for every dollar the consultants were paid to advise on CEO and executive pay, they were paid $11 by the company management to perform other services to the company, according to the committee chairman.
Remuneration Committee checklist for achieving balance in executive pay
The AGM season invariably generates criticism from shareholders, the media and the wider community regarding allegedly excessive levels of executive remuneration.
Comparisons are regularly made with the ‘modest’ salaries of ordinary workers.
Remuneration committee chairmen and their committee members search for ways to respond to these criticisms. However, they do not want to compromise their obligation to ensure the sustainability and enhancement of shareholder value through the application of remuneration policies and practices that successfully attract and retain leadership talent in a competitive market.
Sound remuneration practices should be defensible through clear and detailed communication. Guerdon Associates provides the following guidelines to help remuneration committees assess the quality of their remuneration programs and avoid criticism of their remuneration practices.
Proposed amendments to “share-based payment” accounting standard
Australian Accounting Standard AASB 2 Share-based Payment prescribes the accounting treatment (expensing) for all share-based payments, including equity grants under employee share schemes.
Among the transactions caught by AASB 2 are grants by an employer to its employees of shares (or other equity instruments) in the parent company of the employer.
The Australian Accounting Standards Board has now issued Exposure Draft ED 161, Group Cash-settled Share-based Payment Transactions, January 2008, seeking comments on proposals to amend AASB 2 to clarify that, for example, AASB 2 applies to cash-settled plans where rewards reflect the value of equity in the parent company (i.e. including ‘phantom’ or ‘shadow’ equity plans) and where the parent company rather than the employer is responsible for the cash payment to the employee. The comments are due by 29 February 2008.
We give due warning that this article is likely to be of most interest to our more technically minded readers!
Latest GuerdonData® Updates
This month’s updates to GuerdonData® include disclosures from the following 8 companies:
AWB LIMITED, ARANA THERAPEUTICS LIMITED, ABB GRAIN LIMITED, GREAT SOUTHERN LIMITED, LION NATHAN LIMITED, TIMBERCORP LIMITED, TOWER LIMITED, NATIONAL AUSTRALIA 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
“At-risk pay produces results”, Michael Robinson, Australian Financial Review, 13 December 2007, p.55
“Suncorp's boss reaps $3.9m share windfall”, Liam Walsh, Courier Mail, January 18, 2008