Analysis indicates companies with remuneration strikes underperform

JP Morgan analysed historical results of companies that would have received 1 or more strikes on their remuneration report if the two-strikes legislation was in place prior to the 2011 AGM season.

JP Morgan identified 43 Australian listed companies or just over 20% of the 198 companies in their Australian coverage universe that recorded one or more strikes against their executive remuneration report over the past 3 years (2008-2010). They selected two time windows for analysis in each of the 3 years: 1 week and 1 month after the release of the AGM results. Fifty-nine observations were recorded for each time window to determine whether these companies underperformed the ASX200 after receiving a strike at the AGM, comprised of:

  • 3 companies with 3 strikes
  • 10 companies with 2 strikes
  • 30 companies with 1 strike.

They found that most companies with one strike underperformed the ASX200 both one week and one month after receiving their 1st strike.

Companies receiving 2 or 3 strikes performed even more poorly.

Of the 43 companies in the sample of 198 companies, 32 had market capitalisation over A$1billion (‘large cap’ companies). Large caps equated to about 75% of the ‘strike’ population while 11 companies or about 25% were small caps. This is an interesting fact that JP Morgan does not comment on, but may be a reflection more of the extent of large companies in the sample, rather than an indication that large cap companies are more poorly governed.

The resources and real estate sectors had the highest number of companies with strikes against executive remuneration reports over the past three years.

Unfortunately, JP Morgan did not analyse longer-term performance. The report is an interesting analysis nevertheless, and can be found HERE

© Guerdon Associates 2024
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