GuerdonNews® Volume 12 Number 10

December 2016

Dear reader,

 

Season's greetings, and welcome to the December 2016 issue oGuerdonNews®

 

In our final bumper reading issue for 2016, we:

• Summarise ACSI’s  recent survey indicating an anaemic adjustment in ASX 200 NED fees for a reducing pool of directors

• Provide a venting opportunity for both directors and investors at our 2017 Forum to head off the prospect of another torrid AGM season

• Consider the latest Hermes remuneration principles that prefer no more LTIs

• Alert remuneration committees that LTI offer letters will need changing to ensure you say what you mean about your TSR peer group

• Accueillir a new member of our global partnership of independent remuneration advisers

• Set you straight on whether incentives can ever be “fixed pay in drag”

• Suggest that Australia may be falling behind in ensuring institutional investors and their advisers meet a competent stewardship standard

• Explain why similar performance measures should not be used for STI and LTI

• Lament lost opportunities by the parliamentary bank enquiry for insights into the relationship between pay, culture and good and bad behaviours, and

• Summarise South Africa’s proposed pay governance changes.

We look forward to reporting board governance and executive remuneration news to you again in 2017, with our first monthly issue to be delivered on the second Tuesday in February. In the interim we will, as usual, be toiling away the summer for our clients throughout January.

It has been another great year for Guerdon Associates. Thank you to our clients, and their investors, for being open and responsive to solutions that focus and reward executives on creating value. From all of us in Guerdon Associates, best wishes for a safe, happy and prosperous New Year.

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ACSI surveys ASX 200 NED fees 

Fewer overall ASX 100 directors, but more women, receive modest fee increases.

However, as more women are being appointed to non-executive director positions, fewer are appearing as executive directors. Could we be cannibalising one pool of talent for another?

 Read more

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Save the date: Halt the erosion of trust between boards and investors

The afternoon of 9th March in Melbourne, and morning of 13th of March in Perth.

There is no doubt that 2016 has been a torrid year for ASX 300 companies and their investors, as both come to grips with the vote outcomes on remuneration matters. Both sides are recognising that here has been a loss of trust and respect.

Guerdon Associates has heard first-hand, gross generalisations that boards have been “sneaky” and executives “greedy”, while investors and their advisers have been “lazy”, "lack competence”, and are “not transparent”.

There is fault here. And it has been on both sides.

Read more.

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Hermes new executive pay guidelines

No long term incentives are now ok

Hermes has significant investments in ASX listed companies. It has just released its “Remuneration Principles: Clarifying Expectations” calling for “much simpler, more transparent and less-leveraged” remuneration. 

The suggestion is even made of a move to paying nothing but entirely fixed remuneration, “based primarily on shareholdings, together with a cash salary similar to today’s levels”.  

Read more.

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Mind your peer group disclosures and LTI offer letters

Changes to GICs sectors could mean that you are paying for what you did not intend.

From 1 July 2016, real estate companies are no longer an industry within the finance sector, They are now a stand alone GICs sector. If you have a relative TSR peer group that specifically includes or excludes finance sector and/or real estate companies, you may need to amend the wording of your disclosures and offer letters.

Read more.

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France's leading independent remuneration adviser joins us

Essere Associates is to join Guerdon Associates as a member of the Governance and Executive Compensation Network

Essere Associates is the leading independent adviser on remuneration matters serving  company boards in France and the Benelux countries. Essere joining our organisation provides us with unsurpassed expertise in serving multinational clients. Believe this, because France is an unusual case among large Western economies. 

Read more.

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"It's not an incentive, just fixed pay in drag" comments indicate a failure in critical thinking

If it is contingent on performance, it is not fixed pay

There is also the need to consider the probable total pay outcome. Is it higher or lower, or is more or less at risk?

Read more.

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Pressure on investors and proxy advisers to lift their game

But not in Australia

One of the criticisms Australian boards have with institutional investors is that many fail in their stewardship by not devoting sufficient resources to consider their companies’ strategy, remuneration policy alignment, and specific governance situation.

Unfortunately, Australia does not have a stewardship code to ensure the interests of beneficiaries are adequately protected by their institutional investor stewards. About the best that can be managed is the Australian Financial Services Council proxy voting standard.

 Read more.

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Should similar performance measures be used for both STI and LTI?

Not according to some investors. However, this view can be challenged.

It could make absolute sense to measure the same things over different time periods because it:

• rewards sustainability, 

• discourages volatility, and

• discourages excessive risk taking.

Read More.

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Australian parliament’s first report on banks – apparently sales incentives are the cause of poor behaviour

Direct evidence joining the dots for some conclusions is missing

Yet there are tantalising opportunities presented in the report for a more nuanced and informative understanding of bank culture, remuneration, and their relationship to good and bad behaviours that were not followed through.

Read more.

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South Africa proposes governance changes impacting executive pay

Adapts the better governance measures from other regimes

The King Report on Corporate Governance is a booklet of guidelines for the governance structures and operation of companies in South Africa. 

Compliance with the King Reports is a requirement for companies listed on the Johannesburg Securities Exchange (JSE).

The guidelines are of interest to Australian directors given the cross-pollination of South African and Australian directors on both JSE-listed and ASX-listed company boards. The exchanges and economies of both countries are heavily weighted to commodity (i.e. mining) companies.

See 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.

Copyright © 2016 Guerdon Associates

ISSN 1834-8300