The ASX Governance Council admits it does not yet know what to do about senior executive director equity. For the moment it has retained a slightly reworded Recommendation 9.3 (currently 9.4) that says companies should ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders.
Feedback to Council indicates that companies have had difficulties in understanding the disclosures required by this recommendation. These difficulties by and large stem from the fact that while the recommendation appears to contemplate shareholder approval, approval is not required in the case of executives who are not directors. Council has received feedback both in favour of and against requiring shareholder approval in the case of executives.
One approach to clarifying the ambiguity is to delete the recommendation on the basis that neither the Corporations Act nor the Listing Rules require shareholder approval in relation to executives. On this approach, shareholders have an opportunity to express their views on remuneration by means of the non-binding vote on the remuneration report. The legislature has made its view clear and, on this view, it is suggested that Council should not be ‘second guessing’ the legislature.
Another approach would be to amend the recommendation to clarify that where shareholder approval has been obtained for an equity-based executive remuneration plan, companies should confirm that payments to the executives are in accordance with the thresholds set in those plans. This approach would leave it open to companies to decide whether or not they should obtain shareholder approval. However, companies would be required to disclose on an “if not, why not?” basis whether payments are in accordance with plans approved by shareholders. This approach would not involve moving beyond what the law currently requires but would encourage companies to turn their minds to whether they should obtain shareholder approval.
A third approach would be to amend the recommendation, requiring companies obtain shareholder approval for equity-based executive remuneration plans and require “if not, why not?’ disclosure as to whether approval was obtained. This approach would involve moving beyond what is currently required by the Corporations Act or the Listing Rules in a situation where, it is suggested, the legislature has arguably made its intention clear.
Guerdon Associates’ view is that in regard to senior executive equity, the recommendation should be deleted. There is sufficient separation of power between the approvers (the board) and the recipients (senior executives), plus the shareholder vote on the remuneration report as an additional control and good governance. The reduction in recommendations would reduce compliance costs.
For related articles in this ASX Governance Council’s principles amendments series, see:
Major Changes to ASX Good Governance Principles
ASX Governance Council Requires Evaluation Of Directors And Senior Executives
ASX Governance Council Removes Remuneration Disclosure Recommendation
ASX Governance Council Recommendation Requires That Many Companies Change Their Remuneration Committee
ASX Governance Council Changes Catch Hedging Of Executive Options
ASX Governance Council Removes Guideline For Disclosure Of Non-Executive Director Retirement Benefits
ASX Governance Council And ASX Not Sure Where To Go On Director Equity