Welcome to the December 2013 issue of GuerdonNews®
We have a bumper issue to keep you occupied over the holidays!
In this last newsletter for 2013 we:
• Summarise our annual analysis of ASX 300 CEO executive pay increases
• Review the prospect for more regulatory change – and this time for the better, with the ASIC review of exemptions for employee equity plans
• Look at CEO pay mix trends
• Take an interest in realisable pay trends for the ASX 50
• Assist you to effectively comply with new ASX Governance Council recommendations for board skills disclosure with a checklist
• Consider the government review of superannuation trustee independence, board renewal and conflicts of interest
• Provide a link to our submission to the ASX Governance Council on its new draft guidelines and recommendations meant to have effect from 1 January 2014
• Judicially suggest that it be “penny wise and pound foolish” to not pay for superannuation trustee skills
• Suggest you save the date of Tuesday 11 March 2013 for our annual Forum if you reside on the east coast (this time it is in Sydney), and, given the special issues facing west coast directors, suggest that our Perth Forum on 17 March is just the ticket
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 governance and executive remuneration news to you again in 2014, with our first monthly issue to be delivered on the first Tuesday in February. In the interim we will as usual be working for our clients throughout January.
From all of us in Guerdon Associates, best wishes for a safe, happy and prosperous New Year.
2013 CEO pay – a stronger link with performance
Almost half received no increase
This article looks at the changes to CEO remuneration from 2012 to 2013. Almost half of CEOs received no increase in total remuneration, while overall trends suggest that fixed pay increases and short-term incentives (STIs) are harder to come by but LTIs are increasing in value and frequency.
At 3.3%, the median increase in fixed pay is more subdued than the 7.7% movement in 2012. The number of CEOs who received an increase was also lower than the previous year, 52% of CEOs received an increase in fixed pay in 2013 compared to 70% in 2012.
ASIC set to broaden relief for employee incentive schemes
A significant attempt to reduce red tape
ASIC has released proposed new rules by which employers will be able to obtain automatic relief from the prospectus and other Corporations Act requirements for offers under ‘employee incentive schemes’.
Overall, this is very good news for both Australian and overseas company boards and their management in having to deal with the complexities of employee equity plan design and implementation.
Still, there are some prescriptions for plan design that may be unnecessary.
2013 CEO pay – changes in pay mix
More LTI, less STI
This article looks at the changes to ASX 300 CEO performance-based remuneration received from 2012 to 2013 (using the same methodology as for our 2013 CEO pay increase analysis).
Overall there was a decrease in the frequency of short-term incentives (STIs) and an increase in the frequency of long-term incentives (LTIs). Average STIs increased by 2% and LTIs by 5%. Trends varied across different sectors and company sizes.
A checklist for developing a board skills matrix that will withstand public scrutiny
Responding to a new ASX Governance Council recommendation
Investors, ESG raters, and proxy advisors have shown increasing interest in board composition and, more specifically, in ensuring that the companies in which they invest have the breadth and depth of board skills to enable adequate oversight of the business, both now and in the future. To an extent this interest will only be partially satisfied by new ASX Governance Principle on director skills matrix disclosure.
Boards need to retain control of this process. There have been recent examples of companies receiving unsolicited approaches by credible and apparently well-qualified candidates self-nominating for election to the board.
2013 ASX 50 CEO realisable pay less than statutory disclosed pay
But a weak relationship to performance
This article looks at the changes to ASX 50 CEO realisable remuneration from 2012 to 2013. The analysis is based on 24 CEOs who were in the position for both financial years. It relates only to companies that have published 2013 remuneration reports.
Overall, realisable total remuneration is lower than disclosed statutory total remuneration. The average ratio of realisable pay to disclosed pay was 88% in 2013, an increase on the 82% in 2012. Larger companies are more likely to have realisable pay that is greater than disclosed pay, although this is also related to finance sector data.
Government superannuation review behoves trustees to consider new practices in anticipation of change
But are there enough qualified directors wiling to become independent superannuation trustees?
Consistent with the government’s election promises on superannuation, the Assistant Treasurer, Senator the Hon Arthur Sinodinos AO, has released for public consultation a discussion paper canvassing the issues of superannuation fund governance and transparency and the naming of default superannuation funds in modern awards.
Feedback is sought ahead of possible legislation and regulation on issues associated with the:
• definition of ‘independence’;
• proportion of independent directors;
• process for appointing directors;
• management of conflict of interest;
• ongoing effectiveness of superannuation trustee boards; and
• implementation issues.
Save the date – 2014 Remuneration and Governance Forums
Includes remuneration and board governance issues
Mark your calendars. The 2014 Remuneration and Governance Forums for board directors and institutional investors are scheduled for the afternoon of 12 March in Sydney and the morning of 18 March in Perth.
Guerdon Associates sponsors these Forums with proxy adviser CGI Glass Lewis. Initiated eight years ago, the Forums provided Australia’s first annual forum for directors and their companies’ institutional investors to openly discuss remuneration and governance issues. The Chatham House Rule applies. This allows for a frank exchange of views and constructive debate about what constitutes good remuneration governance.
Judiciary agrees on the need to adequately remunerate superannuation directors
Court rules that being a trustee may not only be hard work, but skills and experience need to be paid for
The difficulty of attracting suitably qualified and experienced directors who are prepared to work for no remuneration has forced the Retail Employees Superannuation Trust (REST) to obtain Court approval to amend the REST trust deed to permit the trustee to be paid remuneration out of the trust fund.
The court referred to a case that determined trustee directors of a fund should be remunerated, notwithstanding the possibility for conflict between their interest to be paid for their services and their duty to administer the fund with as little expense as possible, commenting that the case illustrates the adage “penny wise and pound foolish”.
Latest GuerdonData® Updates
Updates to GuerdonData® include disclosures from the following seven companies:
ANZ Banking Group, Australian Pharmaceutical Industries, DuluxGroup, Incitec Pivot, National Australia Bank, Westpac Banking Corp, and Red 5.
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
“A freeze can put redundancies on ice”, Brian Toohey, The Australian Financial Review, 9 November 2013, p. 22
“Keeping your road map to success private”, The Boardroom Report, Australian Institute of Company Directors, Volume 11 Issue 23, 27 November 2013