New Australian Shareholder Association guidelines

The Australian Shareholder Association guidelines were released in draft form on Monday 3 September 2012.  Comment is required before finalisation in seven days!


The good news is that the ASA appears to have a more nuanced approach to executive remuneration in its guideline discussion.  However, this is marred to an extent by hyperbol and inaccuracy in the introductory “editorial”, and a prescriptive tabular description of the guidelines.


It is unfortunate that the introductory remarks are unable to distinguish between simple primary school arithmatic concepts.  The “editorial” that precedes the specific guidelines refer to the companies and their remuneration consultants setting policy relative to the “mean” remuneration of a peer group.  “Mean” has a clear definition as the arithmetic average.  To the best of our knowledge, NO ASX300 company sets their remuneration policy by reference to the mean.


We suspect that the ASA means “median”.  But the example must go some way to disillusion those who believe most shareholders can be knowledgeable enough to understand basic concepts on which they can vote. 


The ASA compounds the misunderstanding by claiming that rapid pay escalation has occurred as a consequence of companies trying to move pay from below the “mean” to above the “mean”.  They have the right idea, i.e. that pay is rapidly escalating partly as an outcome of pay policies.  But to retain credibility, what they said should have been accurate, i.e. the escalation is the outcome of companies trying to pay at median.  If all low paying companies try to move to the median, the median moves up out of reach.  So everyone is chasing the elusive median.


After the often unsubstantiated hyperbol of the “editorial” introductory remarks, the specific ASA guidelines are similar to, but have been refined on, prior guidelines (see HERE).  Notable elements include the following:


·        The remuneration level guidelines make reference to internal equity checks, requiring companies to disclose the CEO fixed remuneration relative to those of both direct reports (no more than twice the level of) and the average remuneration of employees (no more than 35 times the level of).

·        The ASA requires that a proportion of STI be deferred.  The preferred STI deferral period is 3 years.

·        The LTI performance period preference is for 5 years, but three years now appears to be acceptable.  They make reference to the nature of the business as a determinant in the performance period.  Unfortunately, this flexibility is at odds with their tabular description of requirements, which maintains the old standard of 4 years.

·        Any vested CEO equity awards should be subject to a holding lock for a further 2 years.


The draft guidelines can be found HERE

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