As we welcome another year of e-AGMs, CGI Glass Lewis has released its preview for the upcoming AGM season.

Engagement

The two common discussion points CGI Glass Lewis has noted in its engagement meetings with boards are:

• shareholder expectations towards executive incentives; and
• emerging trends and market practices on reporting sustainability issues.

Holding executives to pre-pandemic profit expectations is an issue some remuneration committees are facing and CGI Glass Lewis expects this to be continuing discussion in the COVID-19 and post-COVID-19 world. Boards which previously were harsh on remuneration in FY2020 are weighing up the implications of paying minimal annual incentives for a second year running. Some are also questioning whether holding executives to a pre-pandemic standard of profit performance makes sense for annual incentive setting. We expect that remuneration committees are re-assessing performance targets in a mid-pandemic and post-pandemic world.

CGI Glass Lewis’s first wave thoughts on the matter can be found HERE.

Boards are also querying CGI Glass Lewis on sustainability disclosures and any new trends or market practice. This reflects the increasing importance of ESG from major international investors (see HERE).  See HERE for our international research on ESG in pay practices. Consistent with Guerdon Associates’ findings, CGI Glass Lewis note that a significant number of companies in the ASX100 have already included ESG measures in their remuneration structures. Based on their conversations during engagement, they expect that it will also become more prevalent for companies outside the ASX100 to incorporate these types of measures in their incentive plans.

Changes in Guidelines

For the upcoming AGMs, CGI Glass Lewis has revised their guidelines in two areas:

• Conflict of Interest arising from Related Party Transactions; and
• Board Diversity.

Previously CGI Glass Lewis set a dollar value to determine if a Non-Executive Director related party transaction was material (and affected independence). This has been updated to when the NED’s beneficial indirect interest is viewed to be larger than 30% of their NED fees, reflecting a position that reflects the relative size of the company, instead of a one size fits all approach.

This approach is similar to the updated board diversity guideline. The previous guideline was for all boards of the ASX300 to have at least one female director. The updated guideline is for boards with 6 or more directors, there needs to be a minimum of two female directors, including any executive or managing directors. For boards with 5 directors or less, at least one is expected to be female.

CGI Glass Lewis has also noted the updated regulation from APRA on CPS511, FAR and BEAR. For Guerdon Associates thoughts on the matter, see HERE for CPS511 and HERE for FAR and BEAR.

To read the full report, see HERE.

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