Welcome to the March 2013 issue of GuerdonNews®

In this second of our monthly issues in 2013 we:

• Hope to concern you enough with requirements for additional disclosures on confusing and, in their proposed form, unhelpful executive pay levels to put in a submission
• While at the same time, hopefully provide some assurance that the part on the proposed disclosure on clawback policies is not too onerous
• Lament the duplication and complexity associated with the termination payment disclosure requirements
• Note that the EU’s agreement to cap banker bonuses will have an impact on Australia’s financial services sector
• Look at an alternative method for assessing performance and paying incentives when the opportunities for “outperformance” are limited

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 had a fantastic Remuneration Forum in Melbourne yesterday and would like to extend our thanks to all participants! Remember to check our website for a summary of discussions in a few days.

Missed the forum? You can still make it to the Perth forum next Monday, 11 March 2013.

Submissions on new pay disclosure laws and clawback due on 15 March 2013

Let yourselves be heard!

As we reported in December 2012, the Australian federal government is proposing new disclosure laws in relation to pay levels and clawback.

If enacted in their proposed form, the proposed laws will result in:

• Current disclosure requirements being retained, including the misleading and complex accounting method for categorising, calculating and stating executive pay levels and components
• An additional 3 tables showing each executive’s pay, calculated in three different ways, as past, present and future pay
• Added pages to remuneration reports to explain that the remuneration figures provided double-count pay, relate to different time periods, relate to different performance periods, relate to differing valuation methods, and relate to different service periods
• More pages added to remuneration reports trying to explain how these disclosures relate to how the board sets pay or, alternatively, to explain a 5th additional set of numbers that better reflects how the board sets pay
• Additional disclosure regarding clawback policies.

But there is hope.

Not too much to worry about with the Government’s clawback proposals

Except for an unintended consequence...

As noted in our 17 December special alert, disclosure will be required of any “reduction, repayment or other alteration” made to KMP remuneration as a result of a material misstatement or omission in the company’s financial statements in any of the previous three financial years.

If no reduction, repayment or alteration has been made, and will not be made, due to a misstatement or omission, the company will have to explain why.

An explanation will be required even if the financial misstatement is positive. Perhaps the government should require disclosure in the event of an “adverse material misstatement or omission in the company’s financial statements”. As it is worded now, companies may have to say something like “The company did not clawback remuneration from the executive because we made more money for shareholders than we thought. We did not think this would be fair.”

EU agreement to cap banker bonuses

Will impact Australian financial services

Negotiators for the European Parliament and EU states said they reached a preliminary deal on a measure that would forbid bonuses that exceed a bankers' fixed salary.

The EU pay limits would apply to all European banks and foreign banks' subsidiaries in the EU. Interestingly, the provisions also apply to European banks’ foreign operations.

The regulation will hamper European banks’ ability to hire talented staff and put them at a competitive disadvantage to their counterparts in Zurich, Sydney, New York, Shanghai and Hong Kong and elsewhere.

Termination payments disclosure may contribute to more complexity and confusion

New government regulation may need refining

As with the government’s proposals to require disclosure of ‘past, present and future’ pay, the proposed new requirements for disclosure of termination payments are much more likely to confuse than clarify the issue. Once more, extra disclosures are to be required, apparently without modifying or removing the current rules.

Is an STI appropriate for a CIO or company secretary, or your local school teacher for that matter?

When loss aversion is a stronger incentive than gain

What is the rationale of providing a short-term incentive to a company secretary or a chief information officer (CIO)?

It may be unrealistic to expect the company secretary or CIO to significantly “outperform” expectations. Their main focus is on-time delivery of services – legal compliance and implementation of existing technologies into the company systems and operations, respectively.

Should they receive an STI for doing their jobs and not messing up?

Latest GuerdonData® Updates

Updates to GuerdonData® include disclosures from the following 13 companies:

Australian Agricultural Co, Ausenco, Aristocrat Leisure Ltd, Boart Longyear Limited, Caltex Australia Ltd, OZ Minerals Limited, PanAust Ltd, Phosphagenics Ltd, QBE, Santos Ltd, Westfield Retail Trust, Woodside Petroleum Ltd, Westfield Group

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

"Average ASX300 board director pay up 3.8% to $154,000", Leading Company, 5 February 2013