13/11/2023
Guerdon Associates examined the Minimum Shareholding Requirement (MSR) policies of non-executive directors in the ASX 100. Data was recorded from the latest available company Annual Reports.
Our report first analyses MSR policies in the ASX 100, before breaking it down by GICS Sector.
Table 1: Presence of MSR policies and guidelines in the ASX 100
Non-Executive Directors |
||
Policy |
Guideline |
No policy or guideline |
71% |
15% |
14% |
Eighty-six companies in the ASX 100 have a defined MSR policy or guideline for both the chair and non-executive directors. Fourteen have not disclosed any policy or guideline.
Despite not having a formally disclosed MSR policy or guideline, Computershare and Sonic Healthcare have a statement within their Annual Reports explicitly encouraging NEDs to hold shares for alignment of interest with shareholders.
Eight companies with an MSR policy or guideline did not disclose the number of years given to achieve, yet half of them require the MSR policy to be met within a “reasonable period”.
Table 2: MSR policies and guidelines in the ASX 100 – Chairs
Chair |
||||
Statistic |
Years to Achieve |
Stated Minimum as % of Chair Fee |
Stated Minimum as % of NED Base Fee |
Stated Minimum as % of Total Fee |
Count |
78 |
71 |
12 |
1 |
Average |
4.14 |
114% |
167% |
100% |
25th percentile |
3 |
100% |
100% |
– |
50th percentile |
4.5 |
100% |
100% |
100% |
75th percentile |
5 |
100% |
200% |
– |
On average, chairs are expected to achieve minimum shareholding requirements in 4.14 years.
Seventy-one ASX100 companies have defined their board chair MSR policy as a percentage of the chair fee, with the most common requirement being a minimum of 100% of the chair fee. Of the 12 companies that disclose MSR as a percentage of the standard non-executive director base fee, chairs were expected to hold 167% on average.
Table 3: MSR policies and guidelines in the ASX 100 – Non-Executive Directors
Non-Executive Directors |
|||
Statistic |
Years to Achieve |
Stated Minimum as % of NED Base Fee |
Stated Minimum as % of Total Fee |
Count |
78 |
68 |
17 |
Average |
4.12 |
118% |
106% |
25th percentile |
3 |
100% |
100% |
50th percentile |
4 |
100% |
100% |
75th percentile |
5 |
100% |
100% |
The number of years given for non-executive directors to achieve minimum shareholding requirements is identical to that of the chairs for all but one company.
Sixty-eight companies have disclosed the non-executive director MSR policy as a percentage of base fee, with an average of 118%. Seventeen companies instead disclose it as a percentage of the total fee (base plus committee fee).
The narrow quartile range suggests ASX 100 market practice for both chair and NED MSR of 100% of base fee (or chair fee) over 4 years. The three US dual-listed companies are well above this, with minimum shareholding requirements of 500% for both the chair and other non-executive directors.
Policy and Guideline Disclosure by GICS Sector
Tables 4 shows the differing MSR policies and guidelines within the ASX 100 by GICS sector.
Table 4: Presence of MSR policies and guidelines by GICS Sector
|
Company |
Minimum Shareholding Requirement |
||
GICS Sector |
Count |
Policy |
Guideline |
No policy of guideline |
Communication Services |
5 |
60% |
20% |
20% |
Consumer Discretionary |
6 |
67% |
17% |
17% |
Consumer Staples |
6 |
83% |
17% |
0% |
Energy |
4 |
100% |
0% |
0% |
Financials |
19 |
84% |
5% |
11% |
Health Care |
7 |
71% |
0% |
29% |
Industrials |
14 |
57% |
21% |
21% |
Information Technology |
5 |
60% |
20% |
20% |
Materials |
21 |
67% |
19% |
14% |
Real Estate |
10 |
60% |
30% |
10% |
Utilities |
3 |
100% |
0% |
0% |
All |
100 |
71% |
15% |
14% |
All Energy and Utilities companies in the ASX100 disclosed an MSR policy. This was closely followed by 84% of Financial companies and 83% of Consumer Staples companies.
The Health Care sector was the least likely to disclose an MSR policy or guideline.
Of the eight GICS sectors with an MSR guideline, up to 30% of companies within a given sector disclosed a guideline.
Minimum Shareholding Requirements by GICS sector
Table 5 summarises the differing MSR policies by GICS sector, utilising the sample of 71 companies that disclose MSR policies as a percentage of chair fee.
Table 6 analyses the MSR for standard non-executive directors where it disclosed as a percentage of base fee.
Table 5: Average MSR for Board Chair by GICS sector
|
Company |
Average Chair |
|||
GICS Sector |
Count |
Policy |
Guideline |
Number of Years to Achieve |
Stated Minimum as % of Chair Fee |
n= |
71 |
59 |
12 |
64 |
71 |
Communication Services |
2 |
50% |
50% |
5.0 |
100% |
Consumer Discretionary |
3 |
67% |
33% |
4.3 |
100% |
Consumer Staples |
6 |
83% |
17% |
4.6 |
117% |
Energy |
3 |
100% |
0% |
4.0 |
100% |
Financials |
15 |
93% |
7% |
4.3 |
123% |
Health Care |
4 |
100% |
0% |
5.8 |
125% |
Industrials |
10 |
70% |
30% |
4.2 |
100% |
Information Technology |
3 |
100% |
0% |
3.7 |
133% |
Materials |
16 |
81% |
19% |
4.4 |
122% |
Real Estate |
7 |
71% |
29% |
3.4 |
100% |
Utilities |
2 |
100% |
0% |
3.5 |
100% |
All |
|
83% |
17% |
4.3 |
114% |
The Information Technology sector has the highest minimum shareholding requirements, with an average MSR of 133% of the chair fee. This is followed by the Healthcare, Financials and Materials sectors.
Among the sample, 64 companies have disclosed the number of years given to achieve MSR. The Healthcare sector have been given the longest period by an average of 5.8 years, while the Real Estate sector being the tightest of 3.4 years average.
Overall, chairs have an average MSR of 114% of their chair fee, expected to be achieved over an average of 4.3 years.
Table 6: Average MSR policies for Non-Executive Directors by GICS sector
|
Company |
Average Other NEDs |
|||
GICS Sector |
Count |
Policy |
Guideline |
Number of Years to Achieve |
Stated Minimum as % of Base Fee |
n= |
68 |
56 |
12 |
62 |
68 |
Communication Services |
4 |
75% |
25% |
4.3 |
100% |
Consumer Discretionary |
5 |
80% |
20% |
4.2 |
100% |
Consumer Staples |
5 |
80% |
20% |
4.5 |
100% |
Energy |
2 |
100% |
0% |
3.0 |
100% |
Financials |
15 |
93% |
7% |
4.4 |
127% |
Health Care |
3 |
100% |
0% |
5.0 |
233% |
Industrials |
9 |
67% |
33% |
4.0 |
100% |
Information Technology |
1 |
100% |
0% |
3.0 |
100% |
Materials |
13 |
85% |
15% |
4.3 |
135% |
Real Estate |
8 |
63% |
38% |
3.6 |
100% |
Utilities |
3 |
100% |
0% |
3.5 |
100% |
All |
|
82% |
18% |
4.1 |
118% |
The Healthcare sector has the highest minimum shareholding requirements at an average of 233% of base fee. This is followed by 135% for the Materials sector and 127% for the Financials sector.
The higher average MSR % of base fee is impacted by the three US dual-listed companies. They each require their non-executive directors to hold 500% of their base fee within a period of 5 years.
The years NEDs are given to achieve MSR follows a similar trend to the chair data. The Healthcare sector has the longest average period to achieve MSR, whereas the Information Technology and Energy sectors are given the shortest average period of 3 years.
Across all sectors, we observe a higher ratio of ASX100 companies disclosing MSR policies and guidelines for non-executive directors, relative to executives. Find our past analysis on executive MSR HERE.