Welcome to the October 2010 issue of GuerdonNews®

In this issue we:

• Suggest a board remuneration committee checklist for a focus on sustainable earnings;
• Summarise the implications that Basel III has for bank bonuses;
• Note that ACSI released a paper assessing the rate of executive pay increases; and
• Suggest that board remuneration committees may want to focus on deferral to clawback as a mechanism of pay governance.

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.

Remuneration committee check list for rewarding sustainable long term performance

Regulators around the world are itching to prescribe rules to ensure executive pay promotes sustainable long term results.

But arguably, non executive directors (NEDs) already have an acute sense of longer term performance sustainability. Earnings and share price volatility does not please long-term investors, who will vent their displeasure at AGMs. NEDs out-serve the CEOs they hire and fire, with an average ASX 300 NEDs’ tenure of 8+ years versus their CEOs of 5 years. And, while motivation for being a NED varies, all have a vested interest in preserving reputations founded on sound business judgment. Lastly, of course, NEDs have a fiduciary duty to the long term interests of the company.

Guerdon Associates has developed the following remuneration committee checklist to ensure executive remuneration better supports long-term performance sustainability and growth.

Basel III capital requirements’ impact on bonuses

The Bank for International Settlements (BIS) Group of Governors and Heads of Supervision announced a strengthening of bank capital requirements that may impact banker bonuses

The report was released on 12 September 2010.

The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. It seeks to promote and strengthen supervisory and risk management practices globally.

In effect, the new Basel accord indicates that bank leverage up to 20x common equity is ok. Lehman would have passed this test.

But the framework will prevent banks from paying out bonuses as high as in the recent past in times of plenty (i.e. during cyclical asset booms).

ACSI releases study of executive pay

ACSI released its annual study of executive pay on 9 September 2010.

The press release accompanying the study indicated that boards “cushioned” executives by maintaining total remuneration levels in a falling share market.

Reference is made to levels of pay on a median and average basis to 2006 and 2007 levels. However, this does not appear to be on a same incumbent basis. That is, there is no measurement of pay change in the period 2006 to 2009 for CEOs who were in the same job over that entire period. This is not uncommon in these types of longer-term analyses, given the turnover in CEOs over that period.

Board remuneration committees may prefer deferral to clawback for governance and risk management

The Australian government’s response to the Productivity Commission’s recommendations included a commitment to exploring the ‘clawback’ of bonuses paid to directors and executives where the company’s financial statements are materially misstated.

According to the government, clawback has the potential to assist shareholders recover overpaid bonuses from directors and executives, to simplify the process for shareholders to pursue bonus overpayment and to “… hold directors and executives more directly accountable to the determination of their own remuneration.”

But directors may prefer deferral to trying to claw back a payment that has vested.

Latest GuerdonData® Updates

Updates to GuerdonData® include disclosures from the following 109 companies:

Ardent Leisure Ltd, AGL Energy Ltd, Atlas Iron Limited, Asciano Group, Australian Infrastructure Group, Amcor Ltd, Ansell Ltd, APA Group, Aspen Group, Arafura Resources Ltd, Billabong Intl Ltd, Bendigo and Adelaide Bank Limited, BHP Billiton Ltd, Berkeley Resources Ltd, Boral Ltd, Beach Energy Limited, Brockman Resources Limited, Brambles Industries Ltd, Commonwealth Bank Australia, Cash Converters International, Connecteast Group, Centennial Coal Co Ltd, Charter Hall Group, Clough Ltd, Carbon Energy Limited, Cooper Energy NL, Coffey International Ltd, Cochlear Ltd, Computershare Ltd, Crane Group Ltd, CSL Ltd, CSG Limited, Customers Limited,, Crown Limited, Downer EDI Ltd, Dexus Property Group, Deep Yellow Limited, Envestra Ltd, Eastern Star Gas Limited, Extract Resources Ltd, Foster's Group Ltd, FKP Property Group, Flight Centre Ltd, Fortescue Metals Group, Fairfax Media Ltd, Gindalbie Metals Ltd, GUD Hldgs Ltd, GWA Intl Ltd, Galaxy Resources Ltd, Hills Industries Ltd, Harvey Norman Hldgs Ltd, Horizon Oil Ltd, Insurance Australia Group Ltd, Industrea Limited, Independence Group NL, Integra Mining Limited, iSOFT Group Ltd, JB Hi-Fi, Jabiru Metals Ltd, Karoon Gas Australia Limited, Kagara Zinc Ltd, Leighton Holdings Ltd, Mincor Resources, Mineral Deposits Limited, Murchison, Metals Ltd, Molopo Energy Limited, Mermaid Marine Australia Ltd, The Mac Services Group, Newcrest Mining Ltd, NRW Holdings Limited, Origin Energy Ltd, Pacific Brands Ltd, Paladin Energy Ltd., Platinum Australia Limited, PMP Ltd, Perpetual Limited, PaperlinX Ltd, Platinum Asset Management Limited, Pharmaxis, Qantas Airways Ltd,, Resolute Mining Ltd, SAI Global Ltd, Sunland Group Ltd, Seek Ltd, Specialty Fashion Group Ltd, Sonic Healthcare Ltd, Skilled Group Limited, Straits Resources Ltd, Super Cheap Auto Group Ltd, Tabcorp Holdings Ltd, Transurban Group NPV, Tassal Group Limited, Toll Holdings Ltd, Tox Free Solutions Limited, Transpacific Industries Group, Transfield Services Ltd, Transfield Services Infrastructure Fund, Tatts Group Limited, UXC Ltd, Valad Property Group, White Energy Co. Ltd, Wesfarmers Ltd, WorleyParsons Ltd, Woolworths Ltd, Western Areas NL, Macmahon Holdings Ltd, Nexus Energy Limited, iiNET Limited, and Seven Group 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

“$12m pay packet no big deal for BHP's Kloppers”, Xavier La Canna and Liam Walsh, Courier Mail, 23 September 2010, Page 61

“Kloppers pay packages rises to $11.8m”, Xavier La Canna and Liam Walsh, Herald Sun, 23 September 2010, p.67

“Top man at BHP gets 9pc pay rise”, Xavier La Canna, The Advertiser, 23 September 2010, p.11

“Origin Energy Limited; Annual Report, Review and Notice of Meeting”, ASX ComNews, 27 September 2010

"Tax reform has killed viability of share options", Annabel Hepworth, The Australian, 27 September 2010, p.21

“Shareholder revolt over executive pay as survey shows they have risen 20pc”, Annabel Hepworth and Tracy Lee, The Australian, 27 September 2010, p.21