Welcome to the July 2008 issue of GuerdonNews®.
In this issue we provide a checklist of the main executive remuneration issues for the 2009 financial year, highlight some companies’ remuneration policies that may have an effect akin to margin calls on executive share holdings, provide an update of the global juggernaut behind executive pay regulation change, and report how the government's superannuation changes for temporary residents has unintended consequences in the war for talent.
We conclude with the latest on executive and director remuneration disclosure updates available on the GuerdonData® on line database.
A checklist of the top 7 board remuneration committee issues for the 2009 financial year
The credit crisis and the collapse in the share price of many companies during the current financial year will impact executive remuneration for the 2008 reporting season and require new approaches to be implemented during the new financial year.
Lower share prices directly reflect shareholder expectations of performance, and also have a big impact on executive remuneration programs.
Depending on the extent that peer group selection validly reflects a company’s competitors for capital, talent, customers and suppliers, a LTI using relative total shareholder return can either cope with the vagaries of volatile market movements or totally negate the relevance of the incentive for effective attraction, retention and motivation.
The incentive value of equity-based LTI plans is reduced where executives expect the share price will stagnate or fall. And there is a risk that in-demand executives will effectively “re-price” their LTI themselves by changing jobs. But, as an offset, lower share prices mean more rights or options in new LTI grants for each dollar of LTI remuneration value – valuable for those with a longer term focus.
So what issues does the Remuneration Committee need to be focusing on now for implementation this year? What executive remuneration questions are likely to be raised by shareholders as they consider their vote on the 2008 remuneration report? The following issues are a good start for directors wanting to make sure their team is in good shape for the tumultuous times ahead.
Beware: share market declines and executive shareholding requirements may have a margin call effect
Share market declines spell trouble for companies that require CEOs and other executives to hold a fixed dollar amount of shares: Some are falling short of ownership targets.
Share ownership is intended to align the interests of corporate insiders with investors, ensuring they feel their joy when stock prices are rising and their pain when prices fall. But with a falling share market some question the wisdom of setting ownership levels as a fixed-dollar multiple of pay, which makes the targets harder to hit and hold amid falling prices.
While ownership targets are not mandatory, they sit well with the requirements of investors, proxy advisers and corporate-governance ratings firms. While not majority practice, a significant proportion of ASX 100 companies require executives to hold shares. This is usually expressed as a multiple or proportion of fixed pay. This ranges from one to five times fixed pay for Australian CEOs, to 0.5 to two times fixed pay for the CEO’s direct reports.
Superannuation changes for temporary residents -- the government’s heavy hand will not attract offshore executive talent
An “initiative” contained within this year’s federal budget runs counter to the prior government’s attempt to make high-taxing Australia (relative to the US and UK) more palatable to offshore executive talent.
It also does not help the country attract non-executive talent.
Under a government proposal that purports to address the long-standing problem of lost and unclaimed member superannuation accounts, temporary residents’ superannuation will be transferred automatically once a year to the Australian Taxation Office, where it will earn no interest unless the visitor becomes a permanent resident. If a temporary resident then leaves the country and does not claim the money within five years of departing Australia, the funds will be forfeited to consolidated revenue.
Global pay regulation – UK stands firm while all others (including Australia) want change
Both the French President, Nicolas Sarkozy, and Germany’s President Horst Köhler, have called for greater regulation to curb “excessive executive pay”.
Recently, we reported the conclusion of the world’s pay regulators that banker pay contributed to the credit meltdown, and that some of the remedies to ensure another meltdown will not occur in future may require regulation.
But sanity still prevails in the UK. In the week of 9 June, the UK government said it would not regulate to curb executive pay. This came first from the British Chancellor, Alistair Darling, and was soon followed by the Economic Secretary to the Treasury, Kitty Ussher, MP.
AASB advises of change to remuneration reports
A week after we reported in our last newsletter that the AASB had decided to approve a change to the accounting standards for remuneration reporting it announced it to the world in a press release.
The standard, which we designated AASB 2008-X Amendments to
Australian Accounting Standard – Key Management Personnel Disclosures by Disclosing Entities, amends AASB 124 Related Party Disclosures.
The standard has now been assigned a number – AASB 2008-4.
Latest GuerdonData® Updates
This month’s updates to GuerdonData® include disclosures from the following two companies:
SINGAPORE TELECOMMUNICATIONS LIMITED and SP AUSNET
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®.
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