How does Australia rate on executive pay governance?

The influence of proxy advisers, global institutional investors, and global regulation (e.g. the Financial Stability Board guidelines) has contributed to a degree of global governance convergence. This is demonstrated by Guerdon Associates’ Governance and Executive Compensation Group (GECN™) review of global executive pay governance,  coordinated and published by our US sister company, Farient Advisors. The GECN™ is the world’s first and largest global group of independent board advisers on executive remuneration and governance.

The report samples 20 countries across six continents, comparing the statutory requirements and best practices across the areas of executive remuneration, board structure and composition, and shareholder rights.

On the whole, Australian governance standards (if not always the statutory requirements) are stronger and more robust than average global practices. For example, while globally a severance payment of 2x salary plus annual incentive is considered global market practice, in Australia, legislation requires that executive termination payments be the 3-year average annual fixed remuneration (unless shareholder approval allows more).  Although Australia’s focus on governance is already high, it is one of the countries where requirements are still being strengthened, as evidenced by the new BEAR legislation (see HERE) and new draft ASX Governance Council Principles (see HERE).

Unlike some countries that rely exclusively on statutory laws, Australia uses a combination of legislation, guidelines and shareholder resolutions.

But Australian standards are not the most onerous. Other countries have more stringent legislation mandating clawbacks, executive pay levels and share ownership minimums. (While clawbacks are not legislated as they are in the US, the new BEAR legislation does mandate malus for the banks, while APRA has made it clear in its recent CBA report (see HERE) that it expects clawback policies to be applied).

And to those that bemoan the complexity and opacity of our remuneration reports, Australian executive remuneration disclosures are also among the most transparent.

Australia’s shareholder rights are similar to many other developed countries. Australian shareholders do not vote on board structure or auditor selection at annual general meetings, while those in Norway, Sweden and France do.

Australia has a low level of legislation controlling board attributes. For example, there is no legislation regarding board or chair independence, director term limits, attendance, diversity age limits or term limits. Other countries have legislated in such areas.

This assessment and the fact that the Australian government’s election mojo is set to “more legislation” mode, may strike fear into the heart of directors, especially given the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and APRA reviews.

But let us not panic. We are sure the government will give us at least a week to consult on any major changes. And, as our GECN™ report indicates, Australia is not too shabby when it comes to executive remuneration and governance.

The GECN report can be accessed HERE.

© Guerdon Associates 2024
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