Welcome to the May 2008 issue of GuerdonNews®.
Welcome to the May 2008 issue of GuerdonNews®. In this issue we wonder if forces are gathering that threaten to impose the heavy hand of regulation on bankers’ pay, suggest a different form of performance hurdle for growth companies’ option plans, provide a primer on director and executive pay compliance requirements, and suggest an alternative method to obtain a truer value of share options and performance rights.
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.
Are international forces gathering to regulate banker pay?
The ingredients for the “perfect storm” may be gathering as a result of the global financial fallout and local concerns.
Usually we pass over media reports of more pay regulation as just another way to sell newspapers. However recent media reports of banker pay regulation have come from very authoritative international sources that include Australian bank regulator representation.
Given Prime Minister Kevin Rudd’s recent support for Australia’s participation in better global financial regulation, as well as several other factors detailed in this article, we think it prudent, in this case, to highlight the debate and suggestions with our readers. We have also been influenced by indications that Australia’s Treasury is reviewing executive pay disclosure laws in response to a government initiative.
Alternative remuneration methods – accelerated options
This month we like to push the executive pay envelope a little further to breakout of cloistered thinking and practices that are not in shareholders’ best interests, suggesting consideration of accelerated options in some situations.
In the November 2007 newsletter we supported the application of share options for some companies' executive pay programs. In addition, we advocated consideration, in the right circumstances, of options granted with a discount to market price.
We like to challenge accepted notions of executive remuneration because, frankly, many of them are not effective. Yet companies and their advisers persist because it is the way things have always been done. Now, however, there is strong evidence that proxy firms and investors are willing to consider difference, providing it is supported by an appropriate rationale.
Accelerated options may be one of these.
Remuneration reports and votes – a primer
Some newly nominated directors may not be familiar with remuneration report requirements.
This article points the way to information sources available to directors and their advisors to find out more.
Under section 300A of the Corporations Act, a listed public company's annual directors' report must contain a discussion on remuneration of directors, secretary and senior managers in a separate remuneration report.
The remuneration report must include a discussion of the relationship between the remuneration policy and the company’s performance.
What is an option or right really worth?
Almost everyone engaged in reviewing executive remuneration is dissatisfied with how options and performance rights are valued.
Currently an estimate of fair value is provided and used in the calculation of share based payments in executive pay tables. While not the complete answer, it may be worthwhile speaking with your company's favoured investment banker to replace a fair value calculation of options and rights with a market value. In this article we discuss one way this might be achieved.
Latest GuerdonData® Updates
This month’s updates to GuerdonData® include disclosures from the following 6 companies:
ALUMINA LIMITED. APN NEWS & MEDIA LIMITED, GRD LIMITED, HENDERSON GROUP PLC, OIL SEARCH LIMITED, STW COMMUNICATIONS GROUP 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
“Investors should not expect miracles from executives”, Michael Robinson, Australian Financial Review, 11 April 2008, p. 75
"Executive Share Issues to Face Vote", Australian Financial Review, 30 April 2008, p. 12
"New Directions", Company Director, Vol 24 No. 04, May 2008, p. 25