The 2009 Remuneration Forum for investors, directors and executives was regarded as the best yet in terms of the rich content and quality of discussion.
The Forum was sponsored by Guerdon Associates with CGI Glass Lewis, and hosted by Allens Arthur Robinson. Attendees included many of the country’s business leaders from the investment and corporate community. In addition, for the first time, Australia’s corporate and financial regulators attended as presenters. Their presence added a necessary and important element to the event.
The keynote address delivered by the Minister for Superannuation and Corporate Law, Senator the Hon Nick Sherry, and the following session presented by APRA Member, John Trowbridge, provided insight to the regulatory context in the financial services sector and likely direction of the government’s initiatives (for all sectors) on executive and director remuneration.
These early comments set the scene for subsequent presentations and lively and well-considered discussion throughout the remaining program. Forum attendees were favoured in each session with the different perspectives of the various parties involved in the determination and regulation of executive pay. Chatham House rules applied during the Forum and therefore we cannot convey details of individual views. However, the general flavour of the debate on executive pay regulation and preferred executive remuneration structures is reflected in the following points, which were very strongly supported:
- Discussion regarding executive pay structure, practice, “excess” and regulation in our own environment needs to recognise that Australia is fundamentally different from the US and the UK, although this message has not been well communicated to (or understood by) the wider community;
- The major focus of regulators is likely to be on executive pay structure, rather than quantum, but some organisations, such as the ASA, are pushing for regulation of both (and the government has made its announcement on termination pay levels since the date of the Forum);
- There is a recognition that “short-termism” is inappropriate and there must be a stronger focus on sustained longer term performance, with remuneration structures designed to support this objective. At the same time, attention also needs to be given to other forms of short-termism, which permeate the entire business system – a prime example being the problem of short term investment results focus and turnover of shares by both institutional and small investors;
- The issue of investment focus was taken further by Mr John Green during his presentation, when he directed attention to the influence of the funds management industry. Mr Green has since published his Forum presentation and suggested readers may like to read it in detail HERE.
- There remains a need for short term incentives – the issue is one of balance in the pay mix and how STI performance is measured;
- Boards already devote a lot of time to remuneration issues and the evidence indicates that they have responded to criticisms reflected in the non-binding vote on remuneration reports. The non-binding vote has been useful and has encouraged directors to engage with shareholders;
- A binding vote on the remuneration report is not workable and ignores the reality of attracting and recruiting executives in a global market;
- More effort needs to be made to improve the quality of remuneration reports, which in many cases do not clearly communicate relevant pay information to shareholders. One example is the failure to explain that the disclosed value of equity-based remuneration is not what is actually being delivered;
- It is very easy to become globally uncompetitive, and regulation of executive pay should be principles-based and leave discretion with directors, rather than being prescriptive.
This is an abbreviated coverage of the many issues discussed in depth at the Forum. However, the general feeling was that we are on the cusp of a period of dramatic and far-reaching change in executive remuneration.
We will continue our efforts to contribute to the debate on executive pay, to influence the direction of policy and regulation and, of course, to continue the flow of timely information to our clients and GuerdonNews® readers as developments occur.
Next month we plan to publish the official and more comprehensive Forum communiqué.© Guerdon Associates 2022 Back to all articles