Welcome to the June 2012 issue of GuerdonNews®
In this issue we:
• Trust that renewed Australian government urgency to amend a legislative flaw will throw a life line to companies that may otherwise receive a remuneration vote “strike”
• Report on an interesting tax case that overturns conventional practice in regard to the effective date for determining the value of equity grants
• Update our pre-budget assessment of announced Australian government policy implications for remuneration to take account of budget announcements
• Provide a checklist for remuneration committees considering LTI re-testing
• Warn that there may be more prescriptive banker pay regulation to come with the announcement of a global banking pay regulation implementation “monitor”, inferring that regulatory politics are still playing out
• Summarise the changes being considered for share based payment accounting treatment
• Report that Singapore has announced changes to its governance code that has better alignment with Hong Kong and Australian remuneration governance codes
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.
Government moves to allow AGM chair to vote undirected proxies on the remuneration report – but not there yet!
The Bill still requires upper house approval
The House of Representatives has effectively passed a bill to amend the Corporations Act to make it clear that the chairman of a listed company AGM is able to vote undirected proxies in the non-binding vote on the remuneration report where the shareholder provides express authorisation for the chairman to exercise the proxy.
The belated urgency may cut things too fine, as the Senate is on a break until 18 June, so some quick work will be required to pass the legislation for the 2012 AGM season.
Clarifying tax on options and rights when the board recruits a senior executive
Deemed to be from date of employment, rather than grant date
A recent tax case overturns commonly held views on the date that the taxable value of options or rights is calculated for tax purposes. It has usually been assumed that this is at the date of grant. In certain circumstances this may need a re-assessment.
Should boards allow a re-test of long-term incentives? A checklist for the remuneration committee
Many ASX listed companies still allow for re-tests in their long-term incentive (LTI) plan.
A re-test is a provision in incentive plans that allows performance against pre-defined targets to be assessed again after the initial assessment.
Re-tests have been criticised because they allow executives to have two (or more) “bites at the cherry”. That is, a lucrative reward is made easier if executives are allowed to “sit the exam” on multiple occasions. The case for re-tests was not made easier by egregious practices. For example, there were instances of companies with a relative total shareholder return requirement that allowed performance to be tested daily if the initial test failed until, in effect, market vagaries allowed the incentive to vest. Fortunately, these egregious practices have virtually stopped.
But the question for board remuneration committees remains – should LTI plan re-tests be permitted? This article attempts to help answer that question, and concludes with a remuneration committee checklist.
Australian 2012 budget
Implications for company remuneration management and costs
Guerdon Associates’ pre-budget assessment of the likely impact of the budget on remuneration practices and business, correct as it was, needs to be enhanced with further news that makes superannuation less certain, and Australia a less attractive place, for employees, while increasing costs for employers.
Global pay regulation of bankers unevenly implemented, with risk potential for Australian banks
A recent report from the Financial Stability Board, has reinforced the view that differences between the more highly prescriptive regulators, and the more flexible principle-based regulators, remain to be resolved.
Australia, along with Canada, Hong Kong, Switzerland, and the US are in the more flexible principle-based group, while the U.K., France, Germany, the Netherlands, Italy, Spain and Singapore, belong to the more prescriptive, inflexible group. There is a third group, comprising Japan, China and Brazil, among others, that insist that pay does not constitute a systemic risk issue in their countries.
These differences continue to be keenly felt within the FSB. Various political strategies are at work to resolve differences in order to have all countries singing from the same hymn book, and reduce the potential for pay induced banking meltdowns. Bank board remuneration committees should therefore be prepared for further action, via either new regulations or new methods for enforcing existing regulations.
Singapore updates its governance principles
While the Singapore guidance in relation to disclosure of remuneration is not quite as transparent as in Hong Kong or Australia, other aspects of the principles are remarkably similar.
Anecdotally, there appears to be a significant increase in the number of directors who hold board seats in more than one country. Two countries where this is evident are Australia and Singapore. Recently, the Monetary Authority of Singapore (MAS) has updated its governance guidelines and principles.
Changes expected to accounting treatment of share based payments
The International Financial Review Board (IFRB) is proposing revising the standard
The accounting expense of share based payments features in all company remuneration reports. It is based on the international accounting standard IFRS 2 (translated to AASB 2 for Australian companies). Now the International Financial Review Board (IFRB) is proposing revising the standard.
Latest GuerdonData® Updates
Updates to GuerdonData® include disclosures from the following 7 companies:
BWP TRUST, SAMSON OIL & GAS LTD, SP AUSNET (STAPLED), OCEANAGOLD CORPORATION - CDI, CAMPBELL BROTHERS LTD, THORN GROUP LTD, and PROGRAMMED MAINTENANCE SERVCES
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
“The executive pay checklist”, Michael Robinson, Leading Company, 03 May 2012
“Extra slug on mining workforce”,
Damon Kitney, The Australian, 10 May, 2012