Guerdon Associates investigated if a company’s stance on adverse remuneration report votes during a chair address impacted the likelihood of a strike in the following year. We also considered the impact of remuneration framework changes that were made and disclosed in the following year’s remuneration report on the prior year’s vote.

Of the current ASX 300, 14 companies received a strike for their FY22 remuneration report. We looked at how they fared in FY23.

Of these, 10 published a chair address to the AGM on the ASX. Five addresses either ignored the pending remuneration report vote or responded defensively to proxies.  The other 5 responded by promising to listen to shareholders and engage.

Not all who were dismissive in the chair letter continued this stance.

Following the 2022 AGM, companies recorded their response to the strike in their 2023 annual report as per Section 300A 1. (g) (ii) of the Corporations Act. We classified the response of companies receiving a strike into 2 categories – 1. responsive and 2. resistant.

Companies that responded to the strike by addressing stakeholder concerns in the following remuneration report, such as with improved disclosures or improved incentive structures, were classified as responsive.

Companies that refuted stakeholder assessments and defended their remuneration, and opting to remain with their remuneration structure and plans, were classified as resistant.

The majority of companies that recorded a strike took some action to address shareholders’ concerns. Of the 14, 11 were classed as responsive and 3 were classed as resistant.

While the companies where the chair promised to be responsive to shareholder concerns received better 2023 outcomes than those who did not (See Table 1), it was the remuneration framework changes that followed that carried the greatest weight in predicting another strike.

Table 1: Average 2023 remuneration report % supportive vote following company response (n=10)

 

The changes companies implemented in response to the strikes included:

• Increasing the number of performance conditions for long-term incentives,
• Changes from options to Restricted Stock Units and Performance Rights,
• Reducing the quantum of LTI awards, and
• Increasing disclosures on targets at threshold, target, and stretch.

These actions appeared to be well received, as can be seen in Figure 2, which illustrates that only unresponsive companies received second strikes. The unresponsive companies also received higher adverse strikes than in the year before.

Figure 1: Number of strikes for responsive companies versus resistant companies

The above would indicate that companies must positively respond to shareholder feedback to avoid second strikes.

See HERE for our analysis on factors involved in remuneration report strikes.

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