Board directors, proxy advisers and investors often ask why the remuneration of some executive positions is being disclosed – and, sometimes, why other executive positions are not being disclosed.
The Corporations Act 2001 requires listed companies to disclose remuneration information for all Key Management Personnel (KMP). KMP are defined in AASB 124.9 as “those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity”.
The number of executive KMP will generally depend on a company’s governance structure, its operational scope and how it makes decisions on operations as a whole. The larger and more complex the business, the greater the number of executive KMP disclosures that could be expected.
Guerdon Associates looked at the executive KMP in the ASX 300 for FY18 to test the theory. Excluding executive KMP serving only part of the year, the number of KMP ranged between 1 and 12, with a median of 4 and upper quartile of 5.
Most of the companies with more than 7 executive KMP are found within financial services, energy and mining, which fits nicely with the theory that relatively large and complex businesses will require more executive positions to be designated as KMP.
If size is a reasonable proxy for complexity, we would expect to find a similar number of executive KMP in companies of similar size. However, this did not appear to be the case. Our regression analyses found that size metrics like market capitalisation, assets, revenues and profits are not a good predictor for the number of executive KMP positions per company within a sector.
With an interquartile range of 3 to 5 executive KMP across all ASX 300 companies, it appears that most companies, unsurprisingly, choose to determine who is an executive KMP narrowly regardless of size.
In our experience, the members of ExCo will be the maximum number of executive KMP and it is highly likely that it may be less than that number, given the definition.
To check how your company compares to the market the table of benchmarks below may be useful:
|KMP per Company in each sector||25th Percentile||Median||75th Percentile|
|All ASX 300 Companies||3||4||5|