The Australian Council of Superannuation Investors’ (ACSI) 2017 conference was held in Melbourne on 4 May with a theme focused on the big environmental, social and corporate governance issues and risks of 2017.

 

The program described the Directors Panel as one where “leading company directors will share their candid and sometimes controversial perspectives on a range of challenges facing Australia’s largest boardrooms”. And they did not disappoint.

 

Some of the more interesting views of the Directors’ Panel included:

 

• It is well recognized in the boardroom that there has been a significant loss of trust and much needs to be done to regain community confidence.

 

• While one director panellist thought that remuneration structures (read fixed, STI and LTI structures) are right, he did not believe boards are being tough enough in setting the performance requirements for executives. It was thought that boards need to toughen up and set objectives, particularly for the STI, that will help address the oft-stated claim the STI is ‘fixed pay in drag’.

 

The director suggested the test for the board when determining the incentive outcomes is to what extent they are aligned with the investor outcomes.

 

Another director on the panel was not as convinced that the STI and LTI structures were right, noting that it can be difficult to reconcile the gap between CEO pay and that of the average worker. However, this same director also agreed that boards and directors need to be much harder and set tough objectives.

 

• The significant vote against one company’s remuneration report was attributed to incorrect proxy advice, as other directors have also suggested. It was maintained that regulation of proxy advisers was required as they hold a significant position of influence and exercise it in a way that reflects on companies, boards and executives – all of whom are held accountable by the wider community.

 

• All of the Panel agreed that words such as “soft targets” should be discontinued in regard to non-financial performance requirements (like that of culture, safety etc). This is because boards can be rigorous in setting quantifiable outcomes for non-financial requirements.

 

Culture was considered to be a key remit of the CEO and board and is not something that is easily changed. It is considered to be critical to company performance and boards should be allowed to tie variable pay to such non-financial objectives.

 

One director noted that boards should be more creative in designing remuneration around and for the company.

 

When questioned on the KPI’s directors would use to measure culture, engagement surveys were considered by all to be effective – provided they were used effectively. A gateway of values and behaviours was suggested to be effective.

 

The Panel largely agreed that “walking the floor” can be very effective in understanding the culture and getting feedback.

© Guerdon Associates 2024 Back to all articles