ASX Corporate Governance Council Revised Principles – More Specifics On Executive Pay and Performance

In August we provided a summary of the revised ASX Corporate Governance Council revised principles (see HERE).  This month we highlight specific revisions as they impact reporting and practices for executive remuneration and performance management.

Recommendation 1.3 – Executive performance evaluation

In the prior version companies had to disclose the process for evaluating senior executives’ performance.  In the revised version, under recommendation 1.3, companies must produce information as to whether the evaluation took place in the reporting period, and if this was in accord with the disclosed process.  This is to be reported in the company’s corporate governance statement.

Recommendation 3.2 – Policy regarding securities trading

Council recommends that companies’ trading policies should prohibit hedging unvested options (in Box 3.2 of the Principles) and that any hedging of vested options should be disclosed.

The amended commentary suggests that a company should have an awareness of the level of economic interest directors and senior executives have in the company to ensure that statements made about alignment between the company’s and directors’/executives’ interests are correct.

Recommendation 5.1 – Timely and balanced disclosure of executive payments

The commentary accompanying the recommendation to have a policy for timely and balanced disclosure suggests that agreements regarding executive payments be disclosed to eliminate surprise when executive remuneration is paid.  Specifically:

“Shareholders’ concerns about executive payments are often exacerbated by a lack of information concerning core entitlements when they are agreed. This can be alleviated if, for example, the nature of the termination entitlements of the chief executive officer, or equivalent, is disclosed to the market at the time they are agreed as well as at the time the actual payment is settled.”

Recommendation 8.1 – Establishing Remuneration Committees

The related commentary now includes a requirement for the remuneration committee charter to set out procedures for inviting non-committee members to attend meetings.

Recommendation 8.2 – Structure of remuneration

The related commentary suggests that companies may find it useful to consult with shareholders about proposed equity based incentive plans that involve the issue of new shares to senior executives, prior to implementation.  In addition, it suggests that companies report to shareholders if any issues of new shares to executives have been via plans approved by shareholders.

© Guerdon Associates 2024
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