Welcome to the May 2012 issue of GuerdonNews®

In this issue we:

• Provide a checklist to minimise the prospect that a board is not distracted by a shareholder strike on executive pay
• Note the implications of government budget initiatives for board remuneration committees
• Describe risk adjusted TSR as a method to more fairly assess executive performance, and not encourage excessive risk taking
• Note the draft legislation requiring superannuation funds to disclose director and executive remuneration
• Provide an overseas example as to how the regulatory burden on executive pay matters can be alleviated for smaller listed companies

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 since our last newsletter.

An oversight checklist so that executive pay does not become a board distraction

Most companies that suffered an executive remuneration 1st strike under Australia’s two strikes law were first time “offenders”.

In many, if not most, the vote outcome was a surprise. This experience behoves boards to ensure that executive pay does not arise as a surprise issue that can be used to divert board attention from oversight of more material matters impinging on company value.

The following is a checklist to ensure that the board has in place processes for dealing effectively with executive remuneration.

Australian government budget initiatives give rise to board remuneration committee planning issues

Government budget initiatives to achieve a budget surplus give rise to potential contingencies that should be on a board remuneration committee’s radar.

One initiative is to double the 15% tax to 30% on superannuation contributions from the “rich”. The second is the removal of tax concessions for living away from home allowances (LAFHA).

Incorporating risk as well as return in assessing and paying for executive performance using risk adjusted TSR

A significant executive pay issue still to be addressed by many companies is assessing CEO performance having regard to risk as well as returns.

Companies that have not yet acted on this issue will face increasing pressure to do so, as the Australian government moves towards requiring companies to provide enhanced disclosures on risk and sustainability.

Equity-based incentives that vest on the basis of Relative Total Shareholder Return (Relative TSR or RTSR) against a comparator group or index are ubiquitous, not only in Australia, but also in the UK and Europe, and are rapidly being adopted in the US. Relative TSR LTIs do not take into account risk. This need not be the case.

Government releases legislation for superannuation fund remuneration disclosure and governance

On 27 April, the Minister for Financial Services, The Hon Bill Shorten MP, released an exposure draft of the legislation the government proposes to introduce to improve governance standards in the superannuation industry.

The legislation will also provide the remaining legislative elements for the ‘MySuper’ program.
The draft legislation would require superannuation funds to publish (on their websites):

• details of director and executive pay;
• details of the assets the fund has invested in; as well as
• up-to-date information for each product offered by the fund on target investment returns, past performance against targets, investment risk, liquidity and fees.

The US eases remuneration and other disclosure requirements for start-up companies – a path for Australia?

In Australia, life seems to get more difficult for small listed companies.

This includes the unhelpful 2009 changes to the tax treatment of options provided as an alternative to cash pay, and the drafting of a two-strikes rule that inadvertently allows minority shareholders with concerns about non-remuneration issues to control the vote.

Just about the only concession for small companies we can think of in this area is that the ASX Listing Rule 12.8 requirement that the board remuneration committee consists entirely of non-executive directors only applies to ASX300 companies.

Apart from a securities exchange with lesser reporting requirements, such as London’s AIM, an alternative may be seen in recent US legislative changes to reduce reporting requirements for smaller companies.

Latest GuerdonData® Updates

Updates to GuerdonData® include disclosures from the following 9 companies:

ALKANE RESOURCES LIMITED, BEADELL RESOURCES LIMITED, INVOCARE LIMITED, CHARTER HALL RETAIL REIT, MACQUARIE ATLAS ROADS GROUP, ALLIED GOLD MINING PLC, AUSTRALIAN AGRICULTURAL COMPANY LIMITED, OM Holdings Limited, and RIO TINTO 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

“Executive pay law flaws heighten AGM worries”, The Boardroom Report, Volume 10, Issue 7, 18 April 2012, p. 1