AMP Capital’s review of the 2017 voting season – a step up in activism
09/04/2018
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AMP capital, with $179 billion of assets under management, is in the top 3 institutional investors in Australia (after Macquarie Group and Colonial First State (see HERE), and is in the top 10 investors in most ASX 200 companies). Its votes on remuneration and other governance matters have a material influence on AGM outcomes for many companies. Therefore, it is useful for boards to understand its voting policy and practice.

AMP Capital has released its 2017 voting review, reporting voting statistics for the AGM season gone by as well as new themes and issues it has encountered.

The following details its voting patterns for key resolutions.

Director resolutions

AMP considers board composition to be one of the most important corporate governance issues for shareholders.

It determines its votes against director elections based on:

  • Performance issues and lack of accountability
  • Too few independent directors
  • Evidence the board has taken actions contrary to shareholder interests
  • Poor gender and/or skills diversity
  • Poor board attendance
  • Poor governance

Consistent with these guidelines, the report named eight companies where it had voted against directors, and 13 companies where it abstained, which it did where improvements were being made or AMP Capital had only just raised the issue of board composition with the company.

Remuneration reports

AMP Capital supported 87% of remuneration report resolutions. It voted against 13 reports.

Its reasons for these votes included one or more of:

  • Overly generous retention benefits in conjunction with generous new grants
  • Performance hurdles where equity vests well below earnings guidance
  • Retrospective adjustment of performance hurdles or start dates or using board discretion to vest incentives if hurdles weren’t met
  • Overly generous quantum
  • Poor performance pay alignment
  • Structures that potentially incentivise behaviour contrary to the best interests of shareholders (e.g. making acquisitions.)
  • Unlimited board discretion for incentives to vest on a CEO’s termination.
  • Overly complex incentive structures.
  • Poor disclosures.

Incentive grants and new plans

AMP Capital voted against incentive grants or plans at nine companies and abstained from voting on the resolutions of nine companies.

It votes against grants or plans where there is:

  • Poor disclosure
  • Performance period is under three years
  • Plan has no performance hurdles or hurdles that are not aligned with shareholders
  • NED participation in executive schemes

Companies considering alternative remuneration frameworks which are essentially just STI and deferral with no LTI need to consider how they will respond to AMP Capital’s concerns regarding the absence of a 3-year performance period. In addition, AMP Capital has been a consistent supporter of relative TSR performance measures. So, while other investors and proxy advisers have been accepting of alternatives, boards need to consider AMP Capital’s stake in their company, and likely vote outcomes, if they remove relative TSR as a performance measure.

NED fee pool increase

AMP Capital only voted against one company’s resolution for an increase. When voting, it considers the size of the company, its complexity, performance, board composition and whether options or retirement benefits are paid to directors (neither of which AMP Capital supports). Fee pool increases need to be justified in disclosures.

Termination payments

AMP’s biggest issues with approving termination payment resolutions were change of control provisions and board discretion around vesting of payments. It voted against resolutions at two companies. While discretion probably needs to be retained by boards in these circumstances, it would be helpful if disclosures provide board considerations that will be taken into account for reward vesting in change in control circumstances.

Shareholder activism

AMP Capital’s ESG team saw a record level of shareholder activism in 2017. It lodged proxy votes for 23 shareholder resolutions at eight companies.

These resolutions were mainly related to climate change, though some touched on human rights, facilitating non-binding proposals, or the election or removal of directors.  AMP voted with management on 16 of the 23 resolutions. (70%.) For comparison, AMP Capital supported 91% of management resolutions.

Regarding non-binding proposals, AMP Capital commented that the current system (where special resolutions need 75% approval while ordinary resolutions need 50%) is not satisfying the needs of stakeholders, yet it abstained from voting on resolutions facilitating shareholders to bring non-binding proposals to AGMs, because it believes the issue should be tackled by regulation. Via regulation, abuse of any new rights to bring proposals can be reduced.

See the report HERE.

© Guerdon Associates 2020
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