What US investors want of Australian listed companies’ executive pay

The US Council of Institutional Investors has updated its executive remuneration policies. The council has considerable influence on investors based in the US, which may be relevant to ASX-listed companies with a significant proportion of US institutional investors.

The update indicates a remarkable convergence between UK and US investor requirements (see HERE) .

This also reflects our recent in-depth survey of global investor requirements (see HERE) .

For example, the CII echoes the UK Investment Association’s war on complexity – the publication introducing the new policy suggests “firms explore adopting simpler plans comprised of salary and restricted shares that vest over five years or more”.

Performance shares were considered too complex and opaque in many cases.

This is an interesting development. Since the GFC (and to an extent prior to that with the Enron and WorldCom crashes) the US has moved away from simple service restricted stock to performance share and unit plans based on TSR and earnings measures due to pressure from investors and proxy advisers Glass Lewis and ISS.

Executive ownership was also a key theme. The CII is of the view that companies should consider implementing a ban on all CEO and CFO share sales until departure.

The introduction of the CEO to worker pay ratio disclosure in the US 2 years ago has also had an effect. The CII considers employee pay a “reference point” for setting executive pay, and (again echoing concerns in the UK) employment benefits (such as retirement benefits or tax gross ups) should be consistent across the organisation.

A note of caution. Some significant Australian proxy advisers and investors have not yet caught-up, or necessarily agree, with the latest global governance perspectives of investors and some overseas proxy advisers. So, boards will have to navigate between the usual rock and a hard place for remuneration policies that are fit for purpose, and accommodate the often conflicting guidelines of their various stakeholders.

The following presents a checklist for boards based on the CII policy guidelines.

1 See HERE

2 See HERE

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