GuerdonNews® Volume 12 Number 2

March 2016

Dear reader,

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Welcome to the March 2016 issue of GuerdonNews®

Many of you will be attending at this week's 10th annual Forum in Perth and Sydney.  We look forward to discussing current remuneration and governance issues with you there.

In the meantime, please enjoy this issue as we:

• Preview proxy advisor ISS' guideline review issues

• Navigate through AMP Capital's proxy vote outcomes and rationale

• Provide a board checklist to overcome disappointing national gender pay inequities

• Demonstrate why allocating equity based on fair value is more valid than face value

• Present arguments for and against performance pay

• Summarise the APRA chairman's concerns regarding governance and culture

We conclude with the latest on executive and director remuneration disclosure updates available on the GuerdonData® on-line database.

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ISS policy review – what’s in store for 2016

Proxy adviser, ISS, held its Sydney policy review meeting on 1 March 2016

The meeting covered:

• Trends witnessed by ISS through 2015

• What was controversial for ISS in 2015

• Where ISS' 2016 remuneration guidelines may be headed

• Board level observations

Read more.

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AMP Capital's ESG insights, guidelines & proxy voting

ESG factors as predictors for a company's financial risk

For several years, AMP Capital has compared the ESG attributes of individual companies and considered how these factors impact relative value and the long-term sustainability of company earnings. Their research focuses on a broad range of factors such as demographic trends, climate change, company culture and board diversity.

In their recently released annual ESG review report, AMP Capital provides their proxy voting record and key guidelines.

 Read more.

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What boards can do about women executives being short-changed

Applying a checklist to measure common indicators of bias is a good start

The Workplace Gender Equality Agency recently published a report with findings that show higher levels of remuneration received by men compared to women in almost every scenario, but particularly in more senior occupations. The large and persistent gender pay gaps in senior management levels provides likely evidence of biased behaviours throughout organisations.

These differences in remuneration at the top end of the occupation scale are shown to have severe negative impacts on women’s expected career earnings. In order to mitigate this, Guerdon Associates have used the agency's findings to provide a board checklist to assess, monitor and overcome gender bias.

Read more.

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LTI grants: face value or fair value?

Equity based on face value does not provide a valid basis for grants or benchmark comparisons.

The past three years have seen a shift from granting equity based on an estimate of fair value, to granting equity based on the face value of the shares at grant date.

This practice has arisen, in large part, because proxy firms, among others, have increasingly used face value in their benchmarking of LTIs to overcome anomalies associated with the accounting standards' inconsistent fair value methods. These have contributed to concerns that “fair value” undervalues a grant.

This article examines why this practice does not provide a true benchmark and can lead to anomalous outcomes for executives and shareholders.

Read more.

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Do away with performance pay: One side of the argument

Would abolishing variable pay more closely align executive reward with shareholder value?

Dan Cable and Freek Vermeulen of London Business School argue in favor of abolishing pay-for performance for senior leaders, proposing instead that most companies pay their top executives a fixed salary.

They support their claim by arguing that performance-related incentives are only effective for routine tasks, fixating on performance can lower it, intrinsic motivation is more powerful than external incentives, contingent pay often leads to cheating, and no measurement system is perfect.

Read more.

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The other side of the argument: performance-based pay works

How can you argue against two millennia of executive performance pay?

A recent paper by two London Business School professors (see "Do away with performance pay: One side of the argument" for our summary) argues that performance-based pay is an inappropriate means of rewarding executives.

However, their paper fails to include several points that validate the use of performance pay:

• Millennia of history has seen performance pay as a key element of success

• Executive decisions are reflected in the share price and dividends in the long run; as a result, long term performance measures best capture the work of an executive

• CEO's lose nothing for bad performance if 100% of their remuneration is fixed

• Incentives motivate CEO's to undertake more difficult tasks, such as major reorganisations

Read more.

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APRA’s focus on governance and culture

Regulation requires a review of policies, procedures and arrangements for good culture

In a further indication of APRA’s increasing focus on governance and culture in entities that it regulates, APRA Chairman, Wayne Byres, told the Senate Estimates Committee on 10 February that:

• A key focus this year will be on superannuation entities, with a particular emphasis on how well superannuation boards, trustees and management are addressing key areas

• The superannuation industry's practices around board appointment, renewal and performance assessment processes can be improved

• Inappropriate behaviour can arise in entities when the compensation structures are heavily based on revenues

Read more.

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Latest GuerdonData® Updates

Updates to GuerdonData® include disclosures from the following 4 companies:

Asaleo Care Limited, GPT Group Stapled, Iress Limited, Woodside Petroleum 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.

Copyright © 2016 Guerdon Associates

ISSN 1834-8300