Welcome to GuerdonNews®
In this month's issue we:
• Identify unrecognised issues with using EPS growth as an incentive measure, and how these can be addressed
• Note how regulator behaviour has shifted from banker pay rules to a focus on the need to change culture, with a query as to whether Australian bank directors are able to take this on board
• Alert directors to probing and relevant questions suggested to investors by Credit Suisse in regard to selection of relative TSR peer groups
• Provide a prediction as to whether the employee share scheme tax amendments will make their way through the circuitous Australian parliamentary system prior to the 1 July implementation date.
We conclude with mentions of Guerdon Associates in other news media and the latest executive and director remuneration disclosure updates available on the GuerdonData® on-line database.
EPS growth measures for incentive payments– what are they really rewarding?
It could be more volatility and riskiness instead of long term sustainable growth
On face value, an earnings growth measure appears to be a sound indicator of performance for executive incentive plans, particularly over the medium to long-term. However, the methodology used by most companies can produce unintended outcomes.
We explore the shortcomings and offer some alternatives that may improve the alignment of the outcomes with the intent. These shortcomings and potential solutions are important for company boards and their investors to understand.
As the limits of banker pay regulation are reached, the focus turns to culture…
May it be a case of a few rotten barrels?
Developments in Europe suggest there are practical limits to regulation of banker pay, with the result that culture is emerging as the new focus in regulators’ and supervisors’ attempts to ensure stability in the financial sector.
In the words of the governor of the Bank of England, and chair of the Financial Stability Board, Mr Mark Carney, "The succession of [bank] scandals means it is simply untenable now to argue that the problem is one of a few bad apples. The issue is with the barrels in which they are stored."
Given Australian banks’ vertically integrated wealth management businesses and evidence of widespread financial advice abuses, the emphases of the regulators may see direct demands on boards to demonstrate how they actively oversee culture.
Credit Suisse looks at TSR peer groups and LTI vesting
Oil and Gas company LTI vesting looks very different depending on your peer group.
Credit Suisse has released research that reinforces earlier findings that differing peer groups for relative TSR comparisons can result in anomalous LTI vesting outcomes. That is, good performers in absolute TSR terms may not have LTI vest, whereas poorer performers would.
Their research focused on ASX 200 oil and gas (O&G) companies. These companies’ relative performance varied depending on the peer group used.
Credit Suisse provides some good questions for investors to ask. Directors be warned.
Employee share scheme tax amendments Bill passed by House of Representatives
Now all that is required is to pass through another enquiry and then the Senate
The Tax and Superannuation Laws Amendment (Employee Share Schemes) Bill 2015 that will implement the government’s proposed amendments to the employee share scheme tax rules passed the third reading stage in the House of Representatives on 27 May 2015, without any amendments. The Bill will now go to the Senate, noting that the Bill was referred to the Senate Economics Legislation Committee on 13 May, for inquiry and report by 16 June.
The amendments are scheduled to commence from 1 July 2015.
Do we anticipate any last minute hitches?
Guerdon Associates in the news
“CEO fixed pay and board fees alignment improves”, Company Director, Volume 31, Issue 04, may 2015, p. 16
“Raising the bar”, Company Director, Volume 31, Issue 04, may 2015, pp. 35-42
Latest GuerdonData® Updates
Updates to GuerdonData® include disclosures from the following 3 companies:
OCEANAGOLD CORPORATION , HENDERSON GROUP PLC and MACQUARIE ATLAS ROADS 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®.