Most Australian companies have a financial year that ended on 30 June. This means work on the remuneration report should be well underway and ready for disclosure. To assist with this reporting process, Guerdon Associates have prepared a checklist for board remuneration committees to consider.

1. Have the remuneration report 95% complete

By FYE the draft of the remuneration report can be drafted with a description of the years’ experience. While there are usually placeholders, final annual financial results, incentive payments and LTI vesting may be outstanding, as they are subject to final audit, most other aspects should be known.

2. Respond to any strike, or high “no” votes from prior

If a remuneration report strike occurred at the most recent AGM, discussion about how this will be remedied must also be included. This task involves input from the HR, finance, legal, investor relations and executive teams. Ultimately it is the responsibility of directors, who will look to the remco, to ensure its preparation is timely and that it meets the requirements of regulators and investors alike. A remuneration report that is 95% complete should be well placed to capture and tailor messages as results are finalised.

3. Include a chair letter

Included would be a draft of the remuneration committee chair letter. This letter provides clarity around remuneration issues and outcomes for the year. As the first item in the remuneration report it sets the tone for the rest of the report. Indeed, many investors consider it a shortcut to highlight what they should focus on when exercising their vote.

Key items included in the remco chair letter are:

• Key changes to KMP remuneration in the past year
• Relevant financial and non-financial performance
• Specific issues of relevance to investors
• Any important events that will impact remuneration outcomes (either positive or negative) and why
• Summary of incentive awards
• Was board discretion considered? Was it exercised? Which way and why?
• Relevant previous year AGM outcomes

This is, in effect, a summary. Do not obfuscate. Present information in a clear and easy to digest format. During a short and intense proxy season, investors and proxy advisers are frustrated by waffle.

4. Be wary of the board’s disclosure of discretion scope

There is an absence of understanding regarding the degree of discretion a board can exercise over remuneration matters. It is not broad, and the many remuneration reports suggesting this are incorrect (see HERE).

Be mindful of whether you are planning on exercising positive or negative discretion, how awards on foot are treated in change in control scenarios, and if these discretions comply with ASX listing rule 6.23 (see HERE).

Instances of applied discretion not disclosed will be discovered. Therefore, report instances of board discretion and the rationale applied.

The topic of discretion around executive pay was a key concept we examined in our June 2024 director briefing, for a summary see HERE.

5. Be aware of the impact of policy changes

If changes to the remuneration framework have been implemented in the year, anticipate and respond to likely proxy adviser and shareholder queries. While some companies’ may have flagged the changes last year, this year’s outcomes might not be what shareholders and the proxy advisers had been expecting. Large increases in fixed remuneration, reduced incentive plan targets, changes to the incentive mix, and higher incentive opportunities are red flags that proxy advisers and investors need to have explained.

6. Schedule engagement meetings

A board remco that has engaged with proxy advisors and investors prior to remuneration report drafting will be better prepared to address concerns with any changes in the report.

After reviewing key issues for the year, it should become clear if a round of engagement meetings with investors and proxy advisers is necessary. If not, do not waste your and their time with meetings on matters considered immaterial or trivial.

If engagement appears justified, consider:

• Who should you meet with?
• Who will do the engagement meetings?
• Will it include proxy advisers?
• How will you engage with foreign investors?

7. Set agenda for the coming year

If it has not been done already, consider important items for the coming year, and whether action is required:

• Are there any upcoming regulatory changes?
• Is the remuneration framework fit for purpose?
• When was the last framework review?
• What are the current remuneration trends?
• What do investors expect?
• What feedback have proxy advisers given?
• What feedback have our executives given?
• Do we have issues with attraction or retention?
• Has the business strategy changed?
• Do we need to review our executive or NED remuneration?

After checking off each of these items you will be in a good position to present the remuneration report on time and be ready for the upcoming AGM season.

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