ACSI Guidelines

The Australian Council of Superannuation Investors (ACSI) reviews its governance guidelines every two years setting out expectations for listed Australian companies. The guidelines were last published in December 2023 (see HERE).

As part of its regular guideline review, ACSI seeks input from various stakeholders, including Guerdon Associates.

While our ACSI specific input was extensive, our  emphasis was consistent with similar input provided to other proxy advisers and regulators over the years. This has been to simplify, and focus on only a few key, verifiable factors, while moving away from detailed prescription. The less prescriptive guidelines might, for example, require simply that companies:

1. 1. Have remuneration that varies with performance, including poor performance and not just good performance;
   2. Evaluate performance considering risk as well as return;
   3. Deliver a high proportion of remuneration in equity versus cash; and
   4. Align the performance assessment and/or beneficial receipt of remuneration over time with the legacy impact of an executive’s decisions.

If these requirements are met, no other prescriptions would be necessary. Proxy adviser reports will be mercifully shorter, the basis for voting recommendations, and boards will need only to ensure their remuneration reports have the 4 pages or so necessary to address these requirements.

Hallelujah… we can only wish for such a simple life.

In the unlikely event that ACSI (or other proxy advisers) will abandon the prescription that their own stakeholders insist on, we also suggested going a bit halfway:

• Consider dilution arising from equity grants when assessing frameworks, not accounting expense.
• Adopt a test to consider whether claims that companies need to recruit globally are valid and be ready to support legitimate cases.
• Shift from defining “excessive pay” as high, to “more than is justifiable or cost effective”.
• Acknowledge that some companies do genuinely perform at a level that warrants persistently high variable pay outcomes, just as others do not.
• Align to behavioural research that shows an effective incentive needs to be achievable, such that if all companies adopted ACSI’s “at risk” expectations, the effectiveness of incentives would reduce.
• Allow broad vesting schedules that reduce pay as performance reduces rather than providing a cliff below which an executives pay no longer reduces for poor performance.
• Recognise that if STI outcomes meet requirements to be variable from year to year , and pay is linked to performance, performance is also volatile, which is undesirable. Better risk adjusted returns requires less volatility, and by implication, incentive outcomes would be less volatile.
• Accept that while imperfect, benchmarking if conducted correctly, is a quantitative yardstick of how much an executive costs to replace and represents a “fair” value for talent. As such, it is fair to vary pay in consideration of benchmarking among other factors such as pay increases to the general workforce.
• Avoid prescribing whether RSUs or other vehicles of payment are desirable; look at the bigger picture, such as the 4 principles above.
• Clarify stance on voting against ex- partner directors serving on committees other than audit which receive services from their old firm – such as risk, technology or remuneration committees.