Non-binding vote on ASX-listed companies’ remuneration reports came into force in 2005. A further “two strikes” rule was introduced in 2011.

It can be theorised that “no votes” on remuneration reports follow a cyclical pattern over time due to the constant change of shareholder governance expectations. New governance expectations lead to higher “no votes” before companies adjust to the expectations, which is then followed by lower “no votes”. This produces a wave-like pattern over time. In reality, “no votes” on remuneration reports are also subject to noise from other forces (such as economic conditions affecting shareholder return) which may distort the wave predictability.

Guerdon Associates conducted an empirical study on the average ASX 300 remuneration report voting outcomes over the past ten years (i.e. 2011 to 2021). Data was sourced from Bloomberg.

The chart below displays the ASX 300 average percentage of votes against remuneration reports for each financial year and the average 1-year TSR.

Though average percentage of votes against is negatively correlated with the 1-year TSR (i.e., relatively lower TSR, higher votes against), the relationship is not statistically significant.

Figure 1: ASX 300 average percentage of votes against remuneration report and average 1-year TSR

The average ASX 300 percentage “no votes” displays cyclicality over the 10-year period:

• The average remuneration “no votes” peak in 2011 was likely due to higher governance expectations by shareholders with the introduction of the two-strikes rule. The subsequent lower average “no votes” in 2012 and 2013 were likely the result of companies successfully responding to shareholder expectations and concerns.
• The 2018 higher average remuneration “no votes” was likely driven by the Royal Commission into the misconduct of the financial sector
• The 2020 higher “no votes” can be attributable to initial COVID-19 impact (lower shareholder returns, companies issuing retention grants and companies paying out bonuses after receiving JobKeeper payments).

The data was further split into two groups: the ASX 100 group and the ASX 101-300 group. The wave-like fluctuations of the average percentage “no votes” are more volatile in the ASX 100 group. This is consistent with larger companies receiving more scrutiny from shareholders on executive remuneration.

Figure 2: ASX 100 and ASX 101-300 average percentage of votes against remuneration report

It will be interesting to see the ASX 300 voting outcomes for FY22, given heightened focus on ESG matters (see HERE) and relatively lower shareholder returns in a high inflationary environment (see HERE).

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