Welcome to the June 2016 issue of GuerdonNews^®

In this issue we:

• Unravel the myth that relative TSR is always transparent

• Note the current IASB chair's warning that non-IAS metrics can be misleading

• Break down NED fee increases by sector and company size

• Describe proxy firms' differences in disclosing conflicts of interest

• Report on a CEO pay structure case study that may have contributed to excessive risk-taking 

• Summarise a study of employee share ownership behaviour

We conclude with references to Guerdon Associates in news media.

The myth of TSR transparency can catch board remuneration committees unaware – a checklist

Remuneration committees must ensure that relative TSR outcomes are robust and consistent

For decades there has been the belief that relative TSR is an independently transparent performance measure. It is not, and it never has been. The belief, commonly shared among both boards and institutional investors, can catch a board remuneration committee unawares when they are queried and found wanting.

We suggest a checklist.

Read more.

IASB chair warns of ‘misleading’ non-IAS metrics in executive remuneration

IASB may permit more robust non-GAAP measures derived from financial reports to be formally reported

Over the past 3 years, investors, proxy advisors and investor representatives have been increasingly calling for companies to more clearly explain what performance hurdles are being used, how they are related to company performance, and, if they are normalised/underlying earnings, how they are derived.

This concern is a global one. The chairman of the International Accounting Standards Board (IASB) has warned the growing use of underlying financial rather than IAS measures in company reporting may produce  misleading results.

Read more.

Utilities and Health Care Non-Executive Directors (NEDs) received the highest fee increases

Analysis of ASX 300 companies' NED fees from all industries

Last month we reported a median increase in non-executive director (NED) remuneration of 2.4% from 2014 to 2015. This month we break down the overall data by sector and company size. We found that NEDs in the utilities and health care sectors received the highest fee increases, while those in the IT & Telecos and Industrial sectors received the lowest fee increases.

Read more.

Proxy advisers, regulation, and their conflicts of interest declarations

Regulation exists for declaring conflicts of interest

The proxy advisory firms in Australia are required to be an Australian Financial Services Licensee and subject to the Corporations Act requirements and ASIC's policy on managing conflicts of interest. The three significant Australian proxy advisory firms, CGI Glass Lewis, Ownership Matters and ISS, all appear to have different approaches to disclosure of potential conflicts of interest.

In the US, regulators have only recently indicated action to increase the transparency of the way advisory firms operate with a view to ensuring stakeholders recognise the potential for conflicts of interest. The level of compliance is expected to be more consistent in the US than in Australia.

Read more.

Pay structures and excessive risk-taking

Research claims there is a link between excessive risk-taking and potential for excessive rewards

David F. Larcker and Brian Tayan published the results of research on a 'pay for performance' case study in April. They explain how the pay structure for Valeant's CEO, Michael Pearson, and the loss of focus of the board contributed to a greater than 90% decrease in the share price over the last five months.

Read more.

Employee share ownership behaviour

Equity ownership plans provide reward vehicle that effectively attracts & retains Australian employees

Fidelity Investments has released a study to assist companies understand employee behaviour specific to employee share purchase plans (ESPP). These plans are the most common way to introduce broad-based equity ownership with employees.

The study found that the discount on purchase was the biggest driver of employee participation and behaviour. The study analyses factors that influence behaviour, including age, tenure, location, discount and purchase value.

Interestingly, it found Australian based employees held on to more of their companies' securities for longer relative to employees in most other countries.

Read more.

Guerdon Associates in the News

“Six key questions in the rem report process”, Company Director, Volume 32, Issue 05, June 2015, p. 10

“The skills set”, Tony Featherstone, Company Director, Volume 32, Issue 05, June 2015, pp. 35-39

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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.