Welcome to the August 2012 issue of GuerdonNews®

In this issue we:

• Summarise ACSI perspectives on executive pay and environmental, social and governance (ESG) risk reporting
• Provide insight into how the new UK binding pay vote will be made workable
• Recognise, via a UK independent’s report, how systemic pay practices contribute to equity market short-termism
• Warn of how executive pay laws can even intrude on private company practices, with new US legislation
• Report that significantly reducing pay for underperformance results in rapidly improved performance

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.

ACSI, executive pay and ESG factors

ACSI has recently published its report on sustainability reporting practices in the ASX 200

ACSI’s research on environmental, social and governance (ESG) risks indicated that while there have been some minor improvements in sustainability reporting over the five-year research period, the majority of ASX200 companies are yet to provide sufficient reporting on their performance against sustainability risks.

ACSI said that it will be lobbying the Australian Government for a "Report or Explain" approach to companies' ESG risk reporting.

New UK executive remuneration binding vote regulations published

The details of the draft regulations are now available

The draft UK regulations specify that the directors’ remuneration report is to contain two distinct parts: a forward-looking remuneration policy report and an implementation report setting out the details of the past financial year remuneration outcomes.

The Kay Review of UK equity markets may impact executive pay

The independent review contributes to discussions on time structure of pay policies

The final report of Professor John Kay’s independent review of UK equity markets and long-term decision making was published on 23 July 2012.

The underlying principle for the paper’s chapter on pay is that market incentives should enable and encourage companies, savers and intermediaries to adopt investment approaches which achieve long-term returns by supporting and challenging corporate decisions in pursuit of long-term value.

As late night TV ads say: “Wait. There is more!”

Further scope for political action on executive pay

The US government now requires all contractors for public sector projects exceeding $25,000 to provide details of their executive pay.

The contracting companies have given numerous reasons why providing the required pay information is not a good idea. In response to feedback on the new regulation, the public sector regulators charged with its implementation more or less said “it is out of our hands as it is the law passed by our politicians”.

Prodding a CEO with a Deep Pay Cut

Cutting pay is an effective way to improve performance

Recent research found that sharp pay cuts often serve as a substitute for outright dismissals, and that boards use extreme reductions in pay as a way to motivate underperforming managers.

The results indicate that boards regard pay cuts as a form of discipline, analogous to outright dismissal, in response to poor company performance.

In the Australian context the research supports the application of more responsive incentive pay.

Latest GuerdonData® Updates

Updates to GuerdonData® include disclosures from the following 16 companies:

METCASH LIMITED, SIGMA PHARMACEUTICALS LIMITED, ADITYA BIRLA MINERALS LIMITED, JAMES HARDIE INDUSTRIES NV, CAMPBELL BROTHERS LIMITED, HILLGROVE RESOURCES LIMITED, PROGRAMMED MAINTENANCE SERVICES LTD, THORN GROUP LIMITED, LEIGHTON HOLDINGS LIMITED, OCEANAGOLD CORPORATION , TIGER RESOURCES LIMITED, MINERAL DEPOSITS LIMITED, ALESCO CORPORATION LIMITED, ARRIUM LTD, NAVITAS LIMITED, GUD 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

“CBA: The canny way to freeze executive pay”, Kath Walters, Leading Company, 18 July 2012

“Skill shortages keep pay freezes at bay”, Agnes King and Alex Boxsell, Australian Financial Review, 19 July 2012, p. 6