Australian companies risk being surpassed by off shore competitors for capital in executive remuneration governance stakes. Research by Guerdon Associates, an executive remuneration consultancy, revealed that Australia’s offshore competitors for capital had better disclosure of formal remuneration governance practices. While part of this is due to regulations and externally imposed governance codes, it is a growing trend for many offshore companies to go beyond even these.
Under ASX governance guidelines, Australia stands virtually alone among developed economies in allowing the CEO, or any other non-independent director, to be on the board remuneration committee. In almost all of Australia’s western country competitors for capital, only independent directors can approve executive remuneration. “But the processes disclosed by many companies in these more rigorous offshore regimes go much further than this,” says Michael Robinson, a director of Guerdon Associates, “in an effort to secure an equity price premium for good governance. While in practice, many Australian company remuneration committees are at least the equal of their overseas counterparts in remuneration governance, offshore companies are tending to do more in disclosing their processes,” says Robinson.
Disclosures to shareholders could be as simple as saying that the remuneration committee met independently of executive management to arrive at remuneration decisions, or that the CEO was not involved in remuneration decisions. In Australia, says Robinson, it may be worthwhile to re-visit remuneration committee charters to emphasise that membership is restricted to independent directors, given that overseas competitors for capital already have this as a regulatory of code requirement. But as this only “levels the playing field” says Robinson, “perhaps there is an opportunity for Australian companies to disclose more about how they arrived at remuneration decisions.”