Annual incentive deferral practice among ASX 100 companies
08/07/2024
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While it can present a problem attracting and retaining executives in some countries, Short Term Incentive (STI) deferral is the norm in Australia. Yet, the details of deferral vary. Guerdon Associates looked at the extent and how the ASX 100 constituents implemented their deferral policies.

Prevalence

In FY23, 19 of the current 100 ASX companies did not defer a portion of STI for their CEO or CFO.

Of the companies that do defer the CEO’s STI, Table 1 reveals that the majority (56%) defer 50% of STI. For the CFO (used as a proxy for other executives) the proportion is slightly lower (49%).

Table 1: Prevalence of deferred portions (%) of STI for FY23 ASX100 CEOs and CFOs that received deferred STI

% Deferred

CEO (n=77)

CFO (n=76)

Less than 1/3rd

12% (9)

17% (13)

1/3rd

10% (8)

11% (8)

Between 1/3rd and 50%

9% (7)

11% (8)

50%

56% (43)

49% (37)

Above 50%

13% (10)

13% (10)

 

Deferral Duration

Table 2 displays the maximum period of STI deferral for executives in the ASX100. Most companies deferred STI for a maximum of either 1 or 2 years. The most common deferral period for CEOs was 2 years (43%), with CFOs trailing closely behind (42%).

Table 2: Prevalence of maximum deferral periods (post-performance period) in deferred STI plans of FY23 ASX100 CEOs and CFOs that received deferred STI

Service period after performance period completion

CEO (n=77)

CFO (n=76)

Restriction period only

1% (1)

1% (1)

1 year

42% (32)

42% (32)

2 years

43% (33)

42% (32)

3 years

8% (6)

7% (5)

4 years

4% (3)

5% (4)

5 years

3% (2)

3% (2)

 

Payment Vehicle

Looking at the companies that deferred or restricted STI after the performance period, most deferred CEO STI into shares, or rights including dividend entitlements (67.5%), as revealed by Figure 1.

This is a factor of the executives already having “earned” their STI and the dividends from any equity relating to that STI. This practice is not as prevalent for LTI.

Few companies deferred STI into cash (5.2%).

Figure 1: Prevalence of different payment vehicles in deferred STI schemes of FY23 ASX100 CEOs.

Exercise or Trading Restrictions

Of executives that received deferred STI in equity, 5 CEOs and 5 CFOs had deferred STI restricted after the required service period was completed. One company only had a restriction period for its CEO and CFO without any service requirement in place.

© Guerdon Associates 2024
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