Welcome to the June 2008 issue of GuerdonNews®.
Welcome to the June 2008 issue of GuerdonNews®. In this issue we review the Australian government’s 2008 budget changes impacting executive remuneration, summarise Australian research showing very good correlations between remuneration governance and shareholder returns, make available the Communiqué stemming from this year’s investor, board and management Remuneration Forum, alert you to AASB standards changes with effect from 30 June impacting remuneration disclosures, and consider what further changes may be coming to Australian regulatory requirements from debate in similar regimes offshore.
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.
Australian federal budget 2008: employee share plans and FBT changes
Australian federal budget 2008: employee share plans and FBT changes.
In addition, changes were also announced to Fringe Benefits Tax (FBT) treatments of certain perquisites. Unfortunately, as with all budgets, changes are announced with no accompanying new legal or regulatory drafts.
This article summarises what we know so far.
Corporations Act and AASB changes to executive remuneration reporting requirements to apply for 30 June 2008 financial year
Corporations Regulations amendments last year and recently announced changes to AASB 124 add up to June 30 year end remuneration report changes.
The changes stem from amendments to the Corporations Regulations last year and recently announced changes to AASB 124.
On Thursday 22 May 2008 the AASB approved Accounting Standard AASB 2008-X Amendments to Australian Accounting Standard – Key Management Personnel Disclosures by Disclosing Entities. The amendments were only shared a few weeks ago as ED 162, Proposed Amendments to Key Management Personnel Disclosures by Disclosing Entities, an Exposure Draft (ED) amending AASB 124 Related Party Disclosures.
Accounting Standard AASB 2008-X will:
• Relieve companies that are disclosing entities from providing detailed key management personnel (KMP) remuneration disclosures in both the Remuneration Report and notes to the financial statements
• Not impact other disclosing entities, such as managed investment schemes
• Be mandatory for annual reporting periods ending on or after 30 June 2008
More details of the changes are described in this article.
Good remuneration governance correlates strongly with investment returns in both good times and not so good times
Goldman Sachs J B Were (GSJBW) recently updated their analysis of the correlation between governance ratings and share price performance.
They concluded three things:
(1) On balance, superior corporate governance provided strong returns for investors, even during the recent period of market volatility
(2) Corporate governance analysis can improve investment returns even for those not pursuing a broader Environmental, Social and Governance (ESG) agenda
(3) However, for those who are looking to “mainstream ESG” as part of their investment process, corporate governance should be a linchpin of broader ESG analysis.
We are not convinced that strong correlation results can justify their conclusion that “superior corporate governance provided strong returns for investors “. Correlation does not, in most studies, prove causation, although it can be inferred if other factors are present.
Not particularly emphasised in their research is that positive remuneration governance rating is far and away the best correlate with long term share price performance success.
This article summarises their research.
Remuneration Forum communiqué released
Eighty representatives from the four main governance constituencies – major superannuation funds, fund managers, non-executive directors and senior executives – met earlier this year to discuss executive and director pay.
The Remuneration Forum was sponsored by remuneration advisers Guerdon Associates and proxy advisers CGI Glass Lewis. Allens Arthur Robinson hosted it in Melbourne. News media was excluded from the event to allow free and frank discussion. Chatham House rules applied.
This Forum provided the foundations for executive and director remuneration changes in 2008 and 2009.
What follows is a summary of the Remuneration Forum Communiqué prepared by a representative panel of Forum attendees.
Prospective regulatory changes for executive compensation consultant disclosure requirements
As we flagged in our March newsletter, the federal government is committed to executive remuneration regulatory change.
The Minister has reinforced this with various recent releases for superannuation and corporate law from Nick Sherry. While we have focused to date on the government’s commitment to ensure that “performance-based executive remuneration arrangements are genuinely linked to performance”, we also need to forewarn subscribers of other likely changes. One of these is the government’s commitment to “consideration of the role of the remuneration consultancy industry in the setting of executive remuneration”.
While there has been very little discussion of this in Australia (apart from our newsletters and web news), similar regulatory regimes are also considering changes. Their debate may shed some light on what form regulatory requirements may change here.
Latest GuerdonData® Updates
This month’s updates to GuerdonData® include disclosures from the following two companies:
SIGMA PHARMACEUTICALS LTD and MACQUARIE 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
“Thin arguments on fat salaries”, Michael Robinson, Australian Financial Review, 21 May 2008, p.71