Welcome to the June 2009 issue of GuerdonNews®
In this issue we:
• Summarise APRA remuneration regulation and guidelines issued last Thursday
• Review the implications of announced changes in employee share plan taxation
• Respond to the draft legislation on termination pay
• Shudder at the impact UK trends could have on NED availability and cost issues if they are observed here
• Suggest you keep your heads down, as more pay regulation may be coming your way in addition to already-announced items relating to termination pay, share plan tax, APRA regulation and the Productivity Commission review of executive remuneration
• Welcome the likelihood that the US shows signs of cleaning up its governance act which may take the heat off the need to over-regulate in other countries
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.
APRA consults on remuneration
On Thursday 28 May 2009, the Australian Prudential Regulation Authority (APRA) released a consultation package on remuneration for authorised deposit‑taking institutions and general and life insurance companies.
Guerdon Associates has reviewed the package and compared it with the packages published elsewhere in the world, as well as with an earlier draft made available to us for comment and discussion with APRA some weeks ago. While we have no doubt some of the sector’s executives will grumble at the implications for their pay, the chorus of complaint should be muted in comparison to the response from London’s bankers to their FSA requirements. This is simply because, on the whole, APRA has done an excellent job.
Consider what they have had to do:
• Respond to Prime Minister Rudd’s agenda requiring APRA to constrain remuneration through leveraging capital requirements against “unrestrained capitalism and greed”
• Be consistent with FSF principles for regulator implementation on a global basis
• Maintain a principles based approach to allow flexibility for our insurance and banking industries to vary their remuneration for competitive advantage
Implications of the 2009 budget announcements on share plans
Since the announcements on Budget night, there has been a blizzard of adverse comments on Government proposals to change the tax treatment of employee share plans.
The Government will go through a consultation process to improve on the original proposals.
The Australian government acknowledged community concerns with the proposed changes and the possible unintended adverse impact for lower level employees. Particular concerns include the low maximum income level of $60,000 per annum for access to the $1,000 tax exemption for broad based share plans and the removal of the ability to defer tax on higher value employee stock plans.
A number of alternative measures have been proposed in order to achieve the Government's stated policy objectives of increasing share plan revenue and minimising employee tax avoidance.
Exposure Draft issued on proposed termination payments Bill
New termination payment laws first announced in March moved a step closer with the release by the Government of an exposure draft of the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 on 5 May.
We had previously expressed our concerns regarding the details in the initial announcement and subsequently reported on the clarification by the Minister for Superannuation and Corporate Law in his letter to the Australian Financial Review in late March.
While supportive of the need to reduce the threshold payment level requiring shareholder approval from the current seven times annual remuneration, we retain reservations concerning the practical and commercial implications of the measures outlined in the exposure draft. Our submission to Treasury in response to the draft focuses on a number of key issues outlined below.
Introducing the “apprentice” NED, as well as more on the full time NED
If Australia goes down the path that the UK is taking we may need to be very concerned at how we are going to source competent NEDs. Their answer of more work, more pay and “provisional NEDs” may not be workable.
Last month we noted that the UK has flagged that it wants more to be regarded as within the work scope of its NEDs, and that “more” might be translated into a full time work commitment for the individual.
Head for the trenches – yet more pay regulation is coming
Termination pay, share plan taxation, APRA regulation and the Productivity Commission review – surely there could not be more? Wrong.
The IOSCO report effectively reviewed the financial services and products that are not APRA regulated. These include mortgage backed securities and their derivatives. Originator and distributor remuneration has been identified in the report as a target for potentially more regulation.
The SEC and US politicians want shareholders to have more say, so we may not have to over-react with regulation
We have noted in a past article that if the US fixed its governance then it would save the rest of the world having to over-respond in attempts to constrain executive pay. So we are happy with the trend revealed below.
Interestingly, the Chairman of the SEC, Mary Schapiro, echoing concerns also expressed in the Productivity Commission background document, said in a recent on-line interview that:
“I am concerned that executive compensation has, for a number of years, become disconnected from actual long-term company performance. I worry that the structure of compensation has driven executives to make decisions that have significantly increased company risk -- without a full understanding by either shareholders or boards of the impact of additional risk on the company's long-term financial condition. While issues recently have been most pronounced in the financial services industry, they appear throughout the market.”
Latest GuerdonData® Updates
Updates to GuerdonData® include disclosures from the following company:
ADITYA BIRLA MINERALS 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
“Sharing the gain”, Melissa Wilkinson, Charter, April 2009, pp.38-41
“Who wants to be a company director?”, Counterpoint, ABC Radio National, 11 May 2009, http://www.abc.net.au/rn/counterpoint/stories/2009/2566278.htm
“Share plans frozen after tax changes”, Patrick Durkin, Australian Financial Review, 14 May 2009, p. 1
“Telstra walks the thin pay line”, Dominic White, Australian Financial Review, 14 May 2009, p. 49
“Anger grows as schemes axed”, Patrick Durkin, Steven Scott and Neil Shoebridge, Australian Financial Review, 16-17 May 2009, pp. 4-5
“APRA postpones executive pay proposals”, Patrick Durkin, Australian Financial Review, 21 May 2009, p. 3