Remuneration advisers and poor pay governance

A UK proxy voting agency has identified remuneration consulting firms associated with poor pay outcomes.

Manifest is one of the most prominent UK proxy advisers. It assembled remuneration report disclosures of external pay advisers, their fees, and subsequent ratings on pay governance (see HERE). This can be undertaken in the UK given that the law regarding pay adviser and fee disclosure is unambiguous.

It is questionable whether such an analysis could be undertaken in Australia because of the ambiguities in the legislation regarding what constitutes pay advice. For example, after intense lobbying from multi-service line firms that provide advice to management as well as boards, there are carve outs for firms that provide actuarial, accounting or legal advice. Hence, in Australia, the firms that are probably most conflicted in terms of providing advice (because their fees from management greatly outweigh their fees from boards) do not have to be disclosed as remuneration advisers or have their fees disclosed. Another carve out is for surveys of market data, despite the fact that the level of executive pay depends very much on which companies feature in the comparison. This is why US regulation requires disclosure of the peer companies used in the analysis. Also not mentioned in the Australian law is advice pertaining to the performance measures and requirements on which management is assessed, and incentive pay is contingent. In addition, there is no disclosure required in Australia of who in management advised the board on remuneration matters.

Guerdon Associates has previously pointed out these matters, and met with the then federal government Minister at the time to discuss the law’s ambiguities (see HERE). But, to no avail.

Additionally, advisers are often appointed to help address issues relating to poor pay governance and should therefore be associated with new initiatives, rather than previous poor outcomes. Hence the type of analysis undertaken by Manifest, while interesting, is problematic.


© Guerdon Associates 2024
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