Welcome to the March 2017 issue of GuerdonNews^®

In this monthly issue we:

• Provide a board remuneration committee checklist for avoiding common reporting traps after using underlying earnings measures for incentive plans, as well as pros and cons of using these measures

• Emphasise the extent of pay and leadership gaps to be overcome in our summary of the BCEC|WGEA Gender Equity Insights report

• Look at how Australia ranks on governance in the Asian region

• Provide background to the Monte Carlo simulation methodology used for valuing equity grants

• Promise a summary of Remuneration and Governance Forum outcomes

We conclude with references to Guerdon Associates in the news media since our last newsletter.

Underlying earnings: a checklist for boards

Proxy advisers and institutional investors have increased their focus on the earnings measures used for assessing and payment of executive incentives 

One of the criticisms of underlying earnings is they are often used for performance measurement for managements’ incentives and are not necessarily aligned with shareholder outcomes.

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Stark gender pay inequality among leadership a confronting challenge 

The second BCEC|WGEA report in its Gender Equity Insights series seeks to add to and strengthen the evidence base that exists around Australian gender pay gaps 

Some key findings include:

• Increasing the representation of women in executive leadership roles is associated with lowering gender pay gaps.

• Gender pay gaps for those participating in a graduate program are minimal, but men are more likely to receive top graduate trainee salaries. 

• The average gender pay gap declines as female representation among management increases.

Read more

How Australia compares on corporate governance within Asia

For each major Asian country, the Asian Corporate Governance Association (ACGA) surveys its institutional investor members on listed company governance standards

Australia has been included in this survey for the first time. 

We review the importance of this inclusion and note where Australia leads and lags on governance relative to regional competitors for capital. 

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The Monte Carlo Simulation methodology for valuing equity

It has not been unusual for chairman and remco chairs to be flummoxed when questioned on the fair value basis sometimes used for granting employee equity

Using a historical example from the famous Monte Carlo casino, we attempt to provide the reader with a rationale behind the methodology of Monte Carlo simulations. 

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Remuneration and Governance Forums in Melbourne and Perth

Our Forums, co-sponsored with proxy adviser CGI Glass Lewis, were held to capacity attendances from boards and investors in both Melbourne on Thursday and Perth yesterday. There was lively discussion, with many valid points being made, including concerns that entrepreneurialism in the listed company space were being stifled by an over emphasis on risk within institutional investors remuneration guidelines.

A summary will appear on our site next week, and a report in next month's newsletter.

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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.