Welcome to the August 2008 issue of GuerdonNews®.
Welcome to the August 2008 issue of GuerdonNews®. In this issue we provide guidelines for executive termination and change in control arrangements, remind directors about the importance of incorporating risk management in the development of executive incentive plans, flag the potential for yet more change in executive pay regulation stemming from a parliamentary committee’s recommendations, provide a checklist for remuneration committees considering performance measures for long term incentive plans, and provide information for making submissions to the government if your organisation’s executives have been burnt by the budget’s FBT changes.
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.
Guidelines for CEO termination and change in control payments
Termination payments for Australian executives have featured extensively in the news over the past month.
But, on the whole, Australian termination payments are modest in comparison to other parts of the developed world, and shareholders of ASX listed companies are well served with regulatory and governance checks.
In this article we provide guidelines for determining appropriate termination and change in control payments.
Is a reminder needed to incorporate risk management into executive pay?
Long before the credit crisis we wrote that boards should take account of risk in setting incentive plan metrics.
Unfortunately some overseas banks did not subscribe to our newsletters. UBS is a case in point. The "conservative" Swiss banking giant wrote down a previously unimaginable US$37 billion dollars. UBS, with assistance from KPMG, put together a 50 page report detailing the hows and whys UBS took such a huge hit.
For what you would expect to be a dry report, it is compelling reading. It explains much more than the sub prime fiasco.
Of interest is that they attributed much of the cause to their executive compensation system.
More changes to pay regulation – parliamentary committee makes recommendations
The Parliamentary Joint Committee on Corporations and Financial Services has inquired into the engagement and participation of shareholders in the corporate governance of companies.
Within their report are recommendations in relation to executive pay regulation.
As a result of the CLERP 9 reforms to the Corporations Act, shareholders can now engage with directors on their remuneration by participating in a non-binding vote on the directors' remuneration report. The main concern heard by the Committee was that shareholder directors being able to vote on their own remuneration, particularly where they have substantial holdings, might undermine this initiative.
The Committee also acknowledged concerns regarding the October 2005 amendment to ASX Listing Rule 10.14, which allows companies to grant shares as part of a director's remuneration package without shareholder approval if the shares are purchased on market.
Checklist for setting performance measures within LTI plans
One of the most challenging aspects of designing effective long-term incentive plans is selecting meaningful but achievable performance measures that motivate the plan participants and enhance the likelihood of driving value creation for investors.
Factors including the introduction of mandatory equity expensing, investor pressure for more rigorous measures and the desire of remuneration committees to develop stronger links between performance and reward, are creating heightened focus on the performance measures used in executive and employee incentive plans. The situation will be exacerbated next year as the government is expected to amend regulatory requirements on companies to better show the relationship of executive pay with performance.
This article summarises the issues that need attention when selecting the measures for a performance-based plan.
Burnt by the budget? Government invites submissions on budget changes to FBT on loans over jointly held assets
The Treasurer announced in the 2008 Budget that FBT will be amended to ensure that the full value of a benefit that has been provided to both an employee and an associate in relation to a jointly held asset will be subject to FBT.
This change will generally apply to new arrangements from 7.30 pm (AEST) on Budget night 13 May 2008. Employers and employees have until the end of the current FBT year on 31 March 2009 to unwind existing salary sacrifice arrangements involving jointly held investment assets.
Transitional arrangements will try to deal with the thousands of mainly mid level bank employees, as well as some executives, caught with subsidised housing cum investment loans in their packages.
Latest GuerdonData® Updates
This month’s updates to GuerdonData® include disclosures from the following four companies:
ADITYA BIRLA MINERALS LIMITED, ALESCO CORPORATION LIMITED, METCASH LIMITED, VIRGIN BLUE HOLDINGS 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
“All options open”, Derryn Heilbuth, CFO Magazine, July 2008, pp. 19-23
“The power to move”, Derryn Heilbuth, CFO Magazine, July 2008, pp. 25-25
“Executive pay needs clarity, not control”, Michael Robinson, Australian Financial Review, 21 July 2008, p.63
“Boards to review executive salaries”, Annabel Hepworth and John Kehoe, Australian Financial Review, 4 August 2008, pp. 1 and 17