GuerdonNews® Volume 7 Number 11

December 2012


Season’s greetings, and welcome to the December 2011 issue of GuerdonNews®

We have a bumper issue to keep you occupied over the holidays!

In this last newsletter for 2011 we:

• Summarise our annual study of ASX300 CEO 2011 executive pay trends
• Validate some and challenge others’ beliefs with a London School of Economics study that shows executive pay does vary with performance
• Summarise the findings of a JP Morgan study that indicates that companies with remuneration strikes underperform
• Keep you out of gaol with a handy Chartered Secretaries’ guide for remuneration voting compliance
• Suggest you save the date of 5 March 2012 for our annual Forum where investors and board directors can exchange views on two strikes law outcomes and methods of engagement
• Note a Bank of England director’s opinion that assessing bank executive performance on return on equity leads to inappropriate pay outcomes

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 2012, with our first monthly issue to be delivered on the first Wednesday in February. Until then, from all of us in Guerdon Associates, best wishes for a safe, happy and prosperous New Year.

Checklist for remuneration voting and keeping out of gaol

Working out who can and who cannot vote on executive remuneration at a general meeting is fraught with traps for both listed and non-listed entities.

Severe penalties include up to five years’ jail and/or fines of up to $22,000 for key management personnel (KMP) who fail to comply with the new rules.

Chartered Secretaries Australia (CSA) has released a useful guide for steps companies can take to try to avoid their directors going to gaol because of an inadvertent lodgment of votes by them, or a “closely related party”.

Analysis indicates companies with remuneration strikes underperform

JP Morgan analysed historical results of companies that would have received 1 or more strikes on their remuneration report if the two-strikes legislation was in place prior to the 2011 AGM season.

JP Morgan identified 43 Australian listed companies or just over 20% of the 198 companies in their Australian coverage universe that recorded one or more strikes against their executive remuneration report over the past 3 years (2008-2010). They selected two time windows for analysis in each of the 3 years: 1 week and 1 month after the release of the AGM results.

They found that most companies with one strike underperformed the ASX200 both one week and one month after receiving their 1st strike. Companies receiving 2 or 3 strikes performed even more poorly.

2011 CEO pay – median increases of 7%

But both mix and form of pay increase varies with type of industry and company size

Incentives in 2011 were similar in frequency and size to those in 2010. One-third of CEOs have suffered a reduction in their total remuneration. Half received an increase in total remuneration, with two-thirds receiving fixed remuneration increases.

Reductions in TR were attributable to reductions in performance pay, particularly LTIs. Conversely, increases in TR were primarily attributable to increases in performance pay.

Larger companies tended to constrain fixed remuneration and maintain relatively large proportions of performance-based awards. Large company CEOs also experienced a shift from LTI to deferred STI, while smaller company CEOs experienced a shift from STI to LTI. The latter may be due to deferral of grant or plan implementation prior to the completion of legislative changes relating to equity-based remuneration.

Remuneration forum for board directors and their companies' investors

5 March 2012 - save the date!

Investors did not hold back in 2011. Thirty percent more companies than last year received a big "no" vote of 25% or more, and incurred their 1st strike. Are institutional investors less tolerant, proxy advisers more demanding, or are company boards deliberately choosing a more courageous path over alternatives? Find out at this year's Forum.

The Forum will review the outcomes from the 2 strikes law so far, and how both corporations and institutional investors responded to it. In addition, we have invited some institutional investors to indicate what they like to see in terms of engagement, and directors from large and small listed companies to describe the effort and process they undertook to engage, with various degrees of success.

The Forum is on the morning of Monday 5 March. Sponsored by Guerdon Associates with proxy adviser CGI Glass Lewis, it will be hosted at Arthur Allens Robinson’s Sydney premises.

If you are an institutional investor, company director, in executive management or a regulator you should receive an invitation in late January (sorry, no media permitted at this event). The Chatham House Rule applies.

Call us if you do not receive this invitation, or want to reserve a place.

London School of Economics finds executive pay does vary with performance, while other workers’ pay varies little

The pay of top executives rises when their company does well and falls when their company does badly, according to academic research, which challenges the suspicion that executive pay rises inexorably regardless of corporate performance.

The research by two academics at the London School of Economics, based on a database of pay at 400 companies that represent 90 per cent of the UK’s stock market capitalisation, suggests there is a strong link between top pay and performance. However, the study did find that executive pay appeared to fall more slowly in bad times than it rose in good times.

This is the first time that data covering everyone from the CEO to a cleaner in a large sample of firms have been collected in the UK. It allows for a rigorous exploration of how pay across a company changes as the performance of the company varies.

Major central banker says that banks should not link pay to equity return

There has been an influential call for banks to end their culture of linking remuneration to equity and look instead at returns on their total assets from Bank of England Executive Director for Financial Stability Andrew Haldane.

Mr Haldane says banks should switch from linking pay to return on equity to linking it to return on assets - which would take into account banks' whole balance sheets.

There are, of course, downsides to Mr Haldane’s suggestion.

Latest GuerdonData® Updates

Updates to GuerdonData® include disclosures from the following 10 companies:


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

“Tough questions for high flyers:, Guerdon Associates, Business Spectator, 4 November 2011 at

INFIGEN ENERGY; IFN Annual General Meetings Presentations, ASX ComNews, 11 November 2011

WESTPAC BANKING CORPORATION; Westpac Group`s US Annual Report on Form 20-F, ASX ComNews, 15 November 2011

“Wesfarmers’ quiet achievers”, John Durie, The Australian, 22 November 2011, p.28

COFFEY INTERNATIONAL LIMITED; Annual General Meeting Addresses, ASX ComNews, 24 November 2011

“Executive pay in 2012”, Michael Robinson, Company Director, Volume 27, Issue 11, Dec 2011-Jan 2012, pp. 32-33


The information, analysis and opinion in this e-mail and attachments are intended to be for informational purposes only. Analyses are based on information taken from public documents or private surveys, and we do not represent to its accuracy. Guerdon Associates assumes no liability for the use or interpretation of information contained herein. This publication is provided 'as is' without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranties of marketability, fitness for a particular purpose, or non-infringement of third party rights.

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