Welcome to the November 2016 issue of GuerdonNews^®

In this issue we:

• Review APRA’s views of risk and culture as a prelude to its forthcoming review of remuneration's impact on culture

• Welcome the Australian government’s intent to improve equity based remuneration for start-ups

• Like that the UK Investment Association will be less hide bound on how executive pay is structured

• Describe how conflicted remuneration will be banished (sort of) from life insurers

• Wonder if there is another chance to become a Nobel laureate for executive remuneration

• Note that the US has released details of pay ratio disclosure requirements

• Observe global convergence on governance matters as even the Canadians join the fray

APRA's paper on industry practice and risk culture 

The review is intended to gauge how well the existing requirements in Prudential Standard CPS 510 Governance are being implemented.

The paper serves as a marker before APRA’s review of remuneration policies and practices among regulated institutions and examination of how they interact with risk culture. 

What was interesting was how APRA defined risk culture in its paper. While it still makes  references to “tone at the top” and “attitudes”, its primary definition of risk culture focuses on behaviours.

 Read more

Start-ups: more employee share scheme changes

Australia is behind the pace with its  start-up concessions.

Most OECD countries recognised years ago that technology was changing the world they needed to make concessions to keep their technologically-creative talent at home.

It is pleasing that the government has got around to doing a number of things about the ESS rules, mainly for start-ups and bringing the taxing point for everyone to the time of exercise.

Read more.

UK Investment Association is ok with no “LTI”, but wants still more disclosure

The Association, with members managing more than £5.7 trillion of assets, released an open letter to all FTSE 350 companies on 31 October setting out new shareholder expectations on executive pay. 

The Principles have been updated to ensure they do not promote a single remuneration structure above others. This is intended to ensure companies  choose the appropriate structure for their business and strategy rather than automatically opting for the commonly used Long Term Incentive Plan (LTIP) structure.

But the Association want more disclosure too.

Read more.

Conflicted remuneration: latest proposal for life insurance

The Australian government continues its reform of the life insurance sector and, in particular, the current rules in relation to conflicted remuneration.

Among other things, the combination of the changes introduced in the Life Act and the proposed regulations will:

•  bring life insurance remuneration into conflicted remuneration that is banned;

•  cover all advisers regardless of their employment arrangements. This means the  ban on conflicted remuneration will apply to both advised and direct sale of life risk insurance products;

•  introduce limits under which commissions will be permitted to be paid;

•  introduce arrangements under which there will be an obligation to repay all or part of the commissions where the policies lapse in the first two years (defined as the "clawback requirements ");

Read more.

Nobel Prize for executive pay

…and no, it did not go to Guerdon Associates (this time)

Two academics based in the U.S. — Oliver Hart and Bengt Holmstrom — were named co-winners of the 2016 Nobel prize in economics for their separate research on contract theory. Their pioneering work includes influencing corporate governance and shedding light on the setting of performance-based pay for CEOs. Holstrom’s work, in particular, supported the use of remuneration linked to measures of relative total shareholder return.

Read more.

US moves to require executive pay ratio disclosure

It will be interesting to see if this can be useful and avoid unintended consequences.

The US Securities and Exchange Commission issued its first guidelines for calculating pay ratios that compare executive compensation to that of the company’s median employee.

Read more.

Canuck governance changes

What huge country with a small multi-cultural, mainly English speaking (sort of) population, a commodity based economy, an oligopoly of banks that survived the GFC with hardly a scratch, a high standard of living, a foreign Queen, and is generally considered well-governed, is not regulating to require more of company boards?

That’s right, Australia.

Canada, on the other hand, is about to jump on the bandwagon and require more of their companies. This has relevance given that Canadian incorporated entities sometimes list on the ASX.

 Read more.

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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.