Key takeaways

Facing a strike on the remuneration report calls for a disciplined, strategic response rather than reactive decision-making.

• Disclosure issue vs design flaw: Do not assume an ‘against’ vote means your remuneration model is broken. If the pushback comes down to ambiguous report drafting, a prompt market clarification can often clear the air. If it is a policy issue, decide whether you’re dealing with a genuine misalignment or just a rigid proxy template.
• Hold your ground on strategy, but fix what is not working: If the feedback addresses poor hurdle-setting or unclear discretion, the incentive framework may be appropriate but not well implemented. If the structure is genuinely aligned with business strategy and was simply miscommunicated, the effort will need to be on clearer disclosure, visual summaries, transparent rationale and careful engagement.
• Use the off-season to reset relationships away from the AGM pressure cooker: Take the time post-AGM to debrief with key investors, stress-test your metrics across downturn scenarios, and clearly document discretion triggers. Direct, early outreach to institutional investors well before the next Notice of Meeting is how you win back support.

While a first strike under Australia’s “two-strikes” rule is no longer an anomaly, it remains a serious reputational trigger. How a board navigates the threat (or the reality) of a strike defines its governance maturity.

Here is an updated strategic framework for RemCo Chairs assessing and responding to a remuneration report strike in the current corporate governance environment.

Phase 1: Immediate triage and verification

When a strike looms, avoid reactive announcements. Take a moment to step back and evaluate the feedback.

Identify disclosure errors vs. substantive objections

• Factual or explanatory errors: If the issue stems from an omission or ambiguous wording in the Remuneration Report, swift action via an ASX release and direct contact with key investors can often change the voting before the poll closes.
• Structural or governance objections: If the grievance reflects a core policy stance, a quick fix is unlikely. Determine whether the objection reflects a fundamental flaw or a rigid application of so-called ‘best practice’ or market standards. If the directors have done their homework and developed a framework they consider to be in the best interests of the company, then it is likely to require more, and better, communication.

Phase 2: Evaluating the merit of the strike

After the strike has landed, investor and proxy adviser guidelines continue to evolve. Assessing whether shareholder objections have substance requires evaluation of your executive pay framework against key governance parameters. These can be categorised across three buckets.

Table 1: Key governance parameters

Quantitative Alignment	Structural	Governance
Peer benchmarking positioning  STI payout when negative TSR  LTI vesting when negative TSR	Restricted Stock Units (RSUs) Non-financial LTI International pay norms	Malus and clawback application Cyber, ESG, and safety  Mandatory AASB 18 Non-financial metrics

Quantitative and pay-for-performance disconnects

• Benchmarking at maximum: Proxy advisers evaluate executive quantum based on maximum opportunity rather than target pay. Ensure your peer group methodology is robust, defensible, and not solely reliant on market capitalisation, particularly if competing for global or private equity talent.
• STIs and LTIs paid when TSR is negative: Paying significant STIs and/or LTIs during a period of negative TSR is a primary trigger for strike votes. If operational performance was strong despite macroeconomic headwinds, this must be explicitly articulated and readily apparent.

Framework and structural issues

• Restricted Shares and Equity Models: While the adoption of Restricted Stock Units (RSUs) is slowly growing across the ASX, some investors and proxy advisers still insist on the grant of only performance-contingent equity. The key is demonstrating why time-based equity with strict service requirements and potentially gateway conditions aligns better with your capital allocation cycle and/or cyclical commodities than arbitrary relative TSR.
• Cross-Border Pay Discrepancies: For dual-listed entities or ASX companies with significant US/UK operations, foreign executive pay norms frequently collide with Australian market expectations. Ensure geographic pay differentials are explicitly justified in the report. There needs to be a clear, self-evident rationale for using global peers – watch out for CGI Glass Lewis’ new criteria!

Expanding Non-financial & Governance Scrutiny

• Malus, Clawback, and Accountabilities: Shareholders increasingly expect boards to exercise downward discretion or apply malus/clawback provisions in the event of major operational failures, systemic conduct issues, safety incidents, or material cyber breaches.
• Expanded Disclosure Requirements: Governance developments, including the implementation of AASB 18 (affecting how income statements present operating performance) and heightened expectations around sustainability disclosures, mean that non-financial STI targets face strict auditing. “Soft” or opaque non-financial goals without quantifiable gateways invite negative votes.
• Normalisation and Non-GAAP Adjustments: Unadjusted use of “underlying” EBITDA/NPAT that excludes one-off impairments, M&A costs, or restructuring expenses while keeping target thresholds low will draw pushback from proxy advisers and investors. Ensure adjustments are applied consistently year-on-year: both upward and downward.

Phase 3: Formulating the Response

Once the board has diagnosed the reasons for the vote outcome, the response will depend on that diagnosis.

Are the objections valid?

YES:

• Acknowledge feedback with humility
• Engage key investors early
• Adjust incentive structures

Scenario A: The grievance has merit

If the strike was driven by poor target setting, discretionary overlays that rewarded underperformance, or opaque metrics, acknowledge the outcome openly.

• Demonstrate accountability in the subsequent Remuneration Report.
• Outline clear remedies, such as improving the performance hurdles and/or vesting scales, formalising discretion policies, or reshaping the incentive mix.
• Engaging early with major institutional investors in the off-season shows that the board is taking the feedback seriously.

NO:

• Retain the core framework
• Address communication gaps
• Enhance rationale in future remuneration reports

Scenario B: The framework is right, but communication and disclosures failed

If the incentive structure strongly aligns with company strategy but was misconstrued due to complex disclosures or rigid proxy templates:

• Stand your ground on strategy: Avoid changing a functioning, strategically aligned remuneration plan merely to tick someone else’s standardised box. The directors’ job is to develop a remuneration framework that is in the best interests of the company – and not simply to duplicate what others are doing.
• Acknowledge disclosure shortfalls: Take responsibility for ambiguous disclosures. Remind market participants that while proxy templates are often standardised, corporate strategies are bespoke, and the remuneration framework has been designed to deliver on the strategy.
• Refine the narrative: Rewrite the disclosure using plain language, incorporating visual summaries, clear target-to-payout charts, and transparent explanations of board discretion and for AI-readability.

Phase 4: Implement a process to avoid future surprises

Boards need to be active every year. The following are actions that can be undertaken in any year.

Table 2: Actions for Boards

Step	Focus Area	Action Item
1	Post-AGM audit	Debrief with major shareholders away from the pressure of AGM season to unpack specific concerns.
2	Independent review	Get an independent and objective review of the framework in the context of the company strategy, from both structural mechanics and communication perspectives.
3	Stress-test metrics	Model prospective STI/LTI outcomes against a range of financial scenarios (including down-market cycles) to test for potential pay-for-performance disconnects.
4	Document discretion	Establish clear, documented frameworks governing how the board evaluates non-financial risk, safety, cyber events, and accounting adjustments.
5	Off-season engagement	Conduct targeted engagement sessions with institutional investors well ahead of the next STI/LTI grants.

What does this mean for RemCos?

A remuneration strike is a clear call for engagement, but it does not automatically require a total overhaul of your executive remuneration framework. By separating communication gaps from structural flaws, maintaining discipline around pay-for-performance alignment, and addressing emerging governance standards proactively, RemCos can turn a vote of friction into an opportunity to strengthen institutional trust.

 

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