Welcome to the July 2015 issue of GuerdonNews®

 We are seeing in the New Financial Year with a revamp of our website that should make articles easier to read on your mobile phones.

In this issue we:

• Describe new UK and US "clawback" laws, noting the probability that more may be expected of Australian companies'  "clawback" policies

• Note that the government's amendments under employee share schemes taxation passed on the last sitting day of parliament and are now law

• Record that the Financial Stability Board has reinforced suggestions that non-financial factors be taken into account when determining executive remuneration

• Highlight some findings in a Citi Research review of capital efficiency as a measure for alignment with value creation

• Evaluate the Productivity Commission's call for the removal of the cessation of employment as a taxing point under the employee share schemes tax regime

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.

Clawback regulation gaining traction – should Australian remuneration committees consider a policy?

“Clawback” refers to the requirement to seek repayment of reward that has vested and been released to an executive. In Australia, many times this term is incorrectly used in place of "malus," which references cancellation or lapse of an unvested incentive opportunity for reasons such as the misstatement of financial accounts, or fraud.

Some Australian listed companies have been careful to ensure their polices differentiate between "malus" and "clawback." This may yet prove useful, if the regulation for both "malus" and "clawback" that has emerged in the rest of the world influences investor expectations as part of the global convergence of governance arrangements.

Read more.

New Employee Share Scheme Tax Rules legislated with effect from 1 July 2015

The government’s amendments to the rules for the taxation of benefits received under employee share schemes were finally passed by federal Parliament on 25 June 2015. In general terms, the main changes are:

1. to make the taxing point for rights and options that qualify for tax deferral the time when the rights and options are exercised; and
2. to introduce special tax concessions for employee share schemes in eligible start-up companies.

The Senate Economics Legislation Committee recognised that taxation of unvested share scheme grants at cessation of employment is out of step with the rest of the world and that there is a case for correcting this, but did nothing to amend the ESS Tax Scheme legislation to fix it.

Read more.

Financial Stability Board links executive compensation with conduct

A recent Financial Stability Board (FSB) report reinforces recent calls for more action by company boards to monitor and regulate "culture", with a focus on remuneration.

The report provides a practical focus on the ‘how’ of taking risk into account in compensation decisions. Particular emphasis was given to 1) the work within the board on compensation, 2) the role of the risk management function, and 3) conduct risk. This list has important implications for both financial and non-financial services companies.

Read more.

Capital efficiency as an executive long-term incentive performance requirement

In many respects, capital efficiency is a measure that should be reasonably aligned with value creation; providing that the minimum return required satisfies a company’s investors and creditors.

A recent Citi Research report explored medium term Return on Invested Capital (ROIC) compared with a company’s Weighted Average Cost of Capital (WACC) as an indicator of company performance, and how this aligns with executive remuneration, total shareholder return and other factors. Alas, the only relationship they did find was that CEO pay varied with company size.

This research is interesting mainly because it considers the variation in CEO remuneration relative to the value added in terms of capital efficiency.

Read more.

Productivity Commission on employee share schemes and an identification number system for company directors…

The Productivity Commission’s draft report calls for the removal of the cessation of employment as a taxing point under the employee share schemes tax regime. One would have thought repetition (this is the second time) by Australia's most respected independent government adviser on economic matters would have some traction.

The Commission also recommends that if the Australian Government intends to provide assistance to small start-up companies with limited access to capital via additional tax concessions under an employee share ownership scheme, eligibility should be based on the number of employees in the company, rather than using turnover.

The final report will then be prepared and forwarded to the Australian Government by the end of August 2015.

 Read more.

Latest GuerdonData® Updates

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

Metcash Limited, Australian Agricultural Company Limited and CSR 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, for more information click HERE.

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The information, analysis and opinion in this e-mail and attachments are intended to be for informational purposes only. Analyses are based on information taken from public documents or private surveys, and we do not represent to its accuracy. Guerdon Associates assumes no liability for the use or interpretation of information contained herein. This publication is provided 'as is' without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranties of marketability, fitness for a particular purpose, or non-infringement of third party rights.