Avoiding trouble on executive benefits

Recent controversy about ASIC (see HERE) and Australia Post (see HERE) executives receiving benefits on top of their public sector remuneration tribunal approved pay may have some learnings for ASX-listed company remuneration committees.

While the public service has its own rules and expectations, a remuneration committee might be expected to ensure that any payments are compliant with company policy and do not exceed the delegations that the remuneration committee and the board has approved.

In the contractual arrangements, there will generally be provision for fixed annual remuneration, a definition of what is included in this figure, and provision for incentives. Anything above this will be compliant with company policy.

It may be policy for tax advice or relocation benefits to be provided in selected circumstances. A company car may also be provided, or insurance or other benefits of a non-monetary nature.

While fringe benefit tax rules have curbed the extent of fringe benefits, to ensure executive remuneration passes the “pub test” and does not lead to poorly informed news media reports, a remuneration committee chair might consider asking the following questions prior to the release of the remuneration report:

1. Is the board award of the current contractual entitlements for the KMP and senior executives?

2. Does the statutory remuneration table reflect these entitlements? Or are payments higher or lower than the contractual entitlements?

3. If the payments are lower, why is that the case? If the payments are higher, what additional benefits were provided to the executive?

4. Were additional benefits approved by the board at the disclosed level? Is there any record in the minutes of this?

5. Are these benefits compliant with company policy and in line with benefits provided to other employees?

6. Are these benefits considered “market practice” outside the company?

7. Did these market benefits cost the company what would be considered reasonable in the market? At what quantum should the board seek external advice about the level of these benefits?

8. Are there benefits that were originally intended to be provided only once or for a short time that have been provided more than once or for a longer period than approved?

9. If the benefits were included in total fixed remuneration, would this change the benchmarking outcome significantly for that executive?

10. Were these benefits provided because of lack of approval for an increase in fixed remuneration? If so, are the “optics” and “ethical feel” of the provision of these benefits better or worse than providing the sought after increase in fixed remuneration?

11. If there is any lack of clarity on what the additional amounts pertain to, what were they? Why were they not clearly disclosed?

© Guerdon Associates 2024
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