Season’s greetings, and welcome to the December 2008 issue of GuerdonNews®

In this issue we acquaint you with a component of executive pay introduced by UBS that may become the focus of regulators and proxy adviser requirements, reveal the truth on ASX 300 CEO pay increases, highlight the low-key introduction of a new British executive pay regulation that could well feature in Nick Sherry’s review of Australia’s Corporations Act, and provide ample evidence that Australia already has significant pay regulation.

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.

We look forward to reporting board and executive remuneration news to you again in 2009, with our first monthly issue to be delivered on the first Tuesday in February. Until then, from all of us in Guerdon Associates, best wishes for a safe, happy and prosperous New Year.

UBS’s revised pay plan – if this is the future executives could soon receive a “malus” with their pay!

This model of executive pay could be the precursor of executive pay frameworks everywhere.

The Swiss based UBS has introduced new executive pay measures in response to the global credit crisis, and their part in it, that respond directly to concerns raised by regulators around the world.

Most of the UBS pay elements are already well represented in Australia’s relatively well-governed companies. However, their new framework has one significant element that most Australian directors, investors and executives will be unfamiliar with – a “malus”.

The real story on CEO pay over the past year – median increases of 15%, and more of this paid as long term incentives

Recent media reports have suggested that overall CEO pay has not moved since the prior year and that pay is becoming more short term.

Both these suggestions are incorrect. Further, they do not make intuitive sense. And in this article we have the facts and figures to prove it.

Intuitively it just does not make sense that CEO pay had not moved in the most recent fiscal reporting period. Firstly, fixed pay movement decisions for most companies would have been based on an analysis of market movements and levels either before the fiscal year began (i.e. in early 2007), or in the last six months of calendar 2007. At those times the local and global economies were barrelling along, demand for executives remained high, and the share market reached its zenith in November that year. The result was a median CEO fixed pay increase of 11%.

By the end of the fiscal year storm clouds were on the horizon. But bonuses were payable on an economic year where earnings results were good for almost all sectors. In addition, stung by criticism that they were being too short term, many boards focussed attention on long term incentives for their CEOs. The result was a median total remuneration increase higher than fixed pay, at 15%.

To get the full, and correct, story read on.

The UK sneaks in an executive pay regulation that may be transplanted to Australia with more noise

UK laws on pay disclosure are changing. This may directly impact Australia’s disclosure requirements, as they borrowed from the earlier UK provisions.

In addition, the UK changes would seem tailor made for the current Australian political environment.

Australian political will to take action has probably been turned up a notch in past weeks. Originally Nick Sherry, the Minister for Superannuation and Corporate Regulation, signaled that the government was reviewing regulations to implement its election platform. Then the financial crisis spurred Prime Minister Kevin Rudd and Treasurer Wayne Swan to commit to additional change regulated by APRA.

Their focus on executive pay found an unlikely ally in the form of the Leader of the Opposition, Malcolm Turnbull. Mr Turnbull’s ill-conceived comments last week received support from Julia Gillard the Deputy Prime Minister. On Friday, Prime Minister Kevin Rudd told Melbourne Radio 3AW that executive remuneration restraints may be necessary.

On Saturday, the Sydney Morning Herald cited a UMR poll indicating that ninety-two percent of 1,000 voters polled last week thought chief executives were overpaid and 72 percent thought the government should regulate their salaries (the paper did not provide a margin of error).

So, having committed themselves to change, the media, the electorate and the politicians themselves may not want to countenance waiting for the G20 to endorse a regulatory framework recommendations from the IMF and FSF in April. The potential for political mileage beyond this will decrease as remuneration reports are published showing that indeed executive remuneration has declined with shareholder returns. The UK regulation is seemingly innocuous in a practical sense, but capable of being tuned to meet the political need for action.

Australian executive pay is far from unregulated…

Prime Minister Rudd has been leading the worldwide call for greater controls over executive remuneration as a major element of his response to the global financial crisis.

There is little doubt this plays well to many voters but, if previous attempts to regulate executive pay elsewhere are any guide, may be counter-productive.

Latest GuerdonData® Updates

This month’s updates to GuerdonData® include disclosures from the following 16 companies:

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, AQUILA RESOURCES LIMITED, AQUARIUS PLATINUM LIMITED, BANK OF QUEENSLAND LIMITED, INCITEC PIVOT LIMITED, LION SELECTION LIMITED, MACARTHUR COAL LIMITED, MOLY MINES LIMITED, NATIONAL AUSTRALIA BANK LIMITED, NRW HOLDINGS LIMITED, ORICA LIMITED, ST GEORGE BANK LIMITED, TOWER AUSTRALIA GROUP LIMITED, TEN NETWORK HOLDINGS LIMITED, VIRGIN BLUE HOLDINGS LIMITED, WESTPAC BANKING CORPORATION

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

“High-flyers feel the pinch as companies fail to deliver”, Damon Kitney, Annabel Hepworth, and David Boxsell, Australian Financial Review, Salary Review 2008, 11 November 2008, pp. S2-S3

“Carrot on a shorter stick, strings attached”, Annabel Hepworth and David Boxsell, Australian Financial Review, Salary Review 2008, 11 November 2008, p. S4

“Shareholders keen to see bucks stop with the board”, Roundtable with David Gonski, Andrew Mohl, Michael Robinson, John Egan, Ann Byrne and Martin Lawrence, and AFR team of Damon Kitney, Annabel Hepworth and Brett Clegg, Australian Financial Review, Salary Review 2008, 11 November 2008, pp. S18-S19

“Rupert Murdoch tops list of highest paid executives, but pay will fall”, Patrick Stafford, Smart Company, 11 November 2008

“Make sure everyone’s on the same page”, Michael Robinson, Australian Financial Review, 1-2 November 2008, p. 62