Welcome to the April 2008 issue of GuerdonNews®.

In this issue we consider whether the more turbulent market conditions will make hitting executive performance targets less likely, confirm that CEO pay is aligned with shareholder returns, summarise another amendment to share based payment accounting standards, and consider both the necessity and challenge of executive pay clawback policies if things did not come out as well as first thought.

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 news media.

As harder times loom, lower pay targets may be not be so soft – a checklist for boards on reviewing incentive targets

As more uncertainties about the economic outlook for 2008 emerge, management, boards and shareholders should be bracing themselves as companies edge towards “softer” performance targets in pay plans.

But take a hard look before making decisions on executive pay plans. Differentiate between the genuine and the "others".

The trend is already evident in the UK, where most companies have a financial year end in April. Some proxy firms have already seen evidence of companies “tinkering” with their pay plans, and have warned that these companies are unlikely to be the last. They predict that a trend towards “softer” performance targets for pay will emerge in 2008.

The same is also happening in Australia.

CEO pay is aligned with shareholder returns, and it is getting better

Judging from the caning executive pay received on the release of company annual reports, most reasonable people would assume that executives were paid too much for mediocre performance. An analysis by Guerdon Associates reveals this is not the case.

If anything, many boards may be too tough. This may be surprising, given the rhetoric from various interest groups at company annual report time.

In addition, we also found a distinct improvement in alignment since new remuneration disclosure requirements were put in place. That is, the initial disclosures in 2005/2006 had many examples of non-alignment between pay and results. Yet a year later, there was a significant improvement as companies received shareholder feedback on their initial reports.

Changes to how share-based payments are expensed (plus a reminder of the effect of modifying or cancelling a share-based payment grant)

Recent big share price falls in expectation of downgraded earnings has resulted in many companies contemplating cancelling or modifying options and other equity-based long-term incentive grants.

If in this situation, board remuneration committees need to understand that the cancelled or modified grants will still have to be expensed, in addition to the expensing required for any new or replacement grants.

On top of this, the Australian Accounting Standards Board has this month advised of an accounting treatment clarification to how share based payments are expensed.

Has your company considered remuneration “clawback” policies?

There is an error in the accounts. An honest mistake resulted in a big incentive payout to executives when there should have been none.

Or worse, there was deliberate fraud, whereby an executive received significant incentive vesting.

Does your company have a policy for recovering these payments? If you do not, you are not alone. In recent research we found that no listed Australian companies have a formal remuneration “clawback” policy for executives. And we know that those that do have an incentive clawback policy limit it to sales commissions for non-executive positions.

Latest GuerdonData® Updates

This month’s updates to GuerdonData® include disclosures from the following 26 companies:

AUSTRALAND PROPERTY GROUP, AXA ASIA PACIFIC HOLDINGS LIMITED, LIHIR GOLD LIMITED, OXIANA LIMITED. QBE INSURANCE GROUP LIMITED, STRAITS RESOURCES LIMITED, AUSTRALIAN AGRICULTURAL COMPANY LIMITED, ARISTOCRAT LEISURE LIMITED, AMP LIMITED, AUSTAR UNITED COMMUNICATIONS LIMITED, CALTEX AUSTRALIA LIMITED, ENERGY RESOURCES OF AUSTRALIA LIMITED, GENERAL PROPERTY TRUST, ILUKA RESOURCES LIMITED, INVOCARE LIMITED, MELBOURNE IT LIMITED, MYOB LIMITED, PAN AUSTRALIAN RESOURCES LIMITED, PETSEC ENERGY LIMITED, RUBICON AMERICA TRUST, RUBICON EUROPE TRUST GROUP, RIO TINTO LIMITED, SPARK INFRASTRUCTURE GROUP, SANTOS LIMITED, TAP OIL LIMITED, WESTFIELD GROUP

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

“Rewarding to be good leaver”, Annabel Hepworth, Australian Financial Review, 5 March 2008, p. 76

“Disclosure begins with clearer compliance regime”, Michael Robinson, Australian Financial Review, 15-16 March 2008, P. 63