ASX Governance Council And ASX Not Sure Where To Go On Director Equity

As mentioned in a prior article, for the moment the ASX Governance Council 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.

The recommendation only makes full sense if all director equity requires shareholder approval. Currently, under listing rule 10.14 it only applies to new issues, and not on market purchases of equity. The various arguments considered by the Council conclude either:

  • There should be no exclusion, because where directors are involved and there is a potential for conflict between the interests of shareholders and the interests of individual directors, this conflict should be managed by requiring shareholder approval for any acquisition of securities in the company
  • There should be an exclusion based around the fact that shareholder approval should only be required where the acquisition of securities involves dilution of shareholders’ existing interests. On-market share purchases do not require shareholder approval because there is no dilution of existing shareholders’ interests. This is the current position in relation to Listing Rule 10.14
  • There should be a narrower exclusion based on the proposition that shareholders should have the opportunity to approve all share acquisitions by directors, even if they do not result in dilution of existing shareholders’ interests, except where the acquisition is pursuant to a salary sacrifice arrangement. This would involve an amendment to Listing Rule 10.14 so that directors are excluded from the exception for on-market share purchases except where they are made pursuant to a salary sacrifice arrangement.

Guerdon Associates’ view is that there should be an exclusion where the acquisition of securities involves dilution of shareholders’ existing interests. With this exclusion, shareholders will otherwise be able to exert influence through the extent of director fees approved, the non-binding vote on remuneration, and the appointment and re-appointment of directors.

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 Council Unsure On Senior Executive Equity Pay

© Guerdon Associates 2024
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